Friday, April 1, 2011

Wealth has its Privileges ...

Apologies for the blogging silence - no excuses apart from having taken the relatively easy way out on Twitter instead.
Thought I'd share some thoughts on the resignation of David Sokol from Berkshire Hathaway, the company headed by the legendary Warren Buffett. While not made a central reason, there was an unusual amount of discussion in a press release about his personal purchases of stock in Lubrizol, a company Berkshire subsequently bought. The press release also claimed nothing unlawful was done and Sokol was subsequently interviewed on CNBC where he defended the probity of his actions. The title of this post links to one of several articles there have been in the financial press in the last couple of days about this.
A few observations:
1) Sokol first bought shares ONE day after telling Citigroup, who brought him Lubrizol among ideas, to set up a meeting with the Lubrizol CEO to discuss a possible deal.
2) Sokol subsequently bought more shares - after discussions had clearly begun and he had initiated. He cleared a $3 million profit on these trades apparently.
3) He said in his CNBC interview that Buffett's partner, Charlie Munger, owned 3% in his personal capacity in a company Berkshire subsequently bought into AND he was the one who instructed Sokol to evaluate.
Reminds me of the case Martha Stewart spent some jail time for - trading profitably on non-public information.
The thing is these guys probably think of this as a privilege of wealth and position and don't see why this may be unfair. Just like the Indian company who is selling 90% of its business and doesn't see the need to share any of the proceeds with non-affiliated shareholders.
To put things in perspective, Galleon's Rajaratnam is being tried for allegedly trading on information that a network he allegedly built of persons who were aware of discussions, like this, that could lead to stock price sensitive events - like this. Rajaratnam is looking at the possibility of something like 20 years jail time while Buffett claims Sokol did nothing unlawful?
Maybe I'm just not smart enough but I don't think there's that much of a difference here ...

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