Advice for David Sokol, by David Sokol

I still don't know what to think about last week's revelation that David Sokol, a former Berkshire Hathaway (NYSE: BRK-A  ) (NYSE: BRK-B  ) manager and heir apparent to Warren Buffett, resigned after disclosing he made $3 million by buying shares of Lubrizol (NYSE: LZ  ) weeks before convincing Buffett that Berkshire should buy the company.

Is it insider trading? Doubtful, but that's for the Securities and Exchange Commission to decide. If not, it still smells really bad. Sokol made a mistake. He'd probably agree. That's why he resigned.

Either way, Sokol may have avoided this whole snafu by following the advice of a 2007 book written by ... David Sokol.

Yes, himself.

Sokol's book, Pleased but Not Satisfied, is filled with bits of advice on business ethics and integrity. It's worth pointing out a few of these quotes not to smear it in his face, but to learn from them. That, too, he'd probably agree with.

"Good judgment comes from bad experiences. But you don't need to have all those experiences yourself. Watch and observe others' mistakes, so you do not repeat them."

Never before have the consequences of insider trading been more visible than over the past year, as hedge fund manager Raj Rajaratnam faces a massive insider trading trial and the SEC cracks down on so-called expert networking firms. There's never been a better time to watch and observe the insider trading mistakes of others.

"There is no excuse for a lack of ethics or integrity. You must hold yourself and your team to the highest standards of ethics and integrity all the time. If you are uncertain about an issue, it's useful to ask yourself, 'Would I be absolutely comfortable for my action to be disclosed on the front page of my hometown newspaper in an article written by a knowledgeable and thorough reporter and read by my family, friends, and co-workers?'"

Had Sokol asked himself this question before the Lubrizol ordeal, I can't help but think the answer would have been a resounding, emphatic "no." He pointed in this direction on CNBC last week, saying, "knowing today what I know, what I would do differently is I just would never have mentioned [Lubrizol] to Warren, and just made my own investment and left it alone."

"We are very tolerant of mistakes resulting from a judgmental error at the planning stage, when despite our team's best efforts, the market zigged and we zagged. It happens. We recognize the error, adjust from it and learn from it. We are not tolerant, however, of mistakes made from a lack of planning or diligence or from plain laziness. Tolerating such situations ultimately makes the organization very good at them."

Sokol may have actually nailed this one. Likely realizing that his actions resulted from a lack of planning and misguided foresight -- not an unfortunate, random event -- he quickly admitted everything and resigned, rather than staying on and creating excuses, which would have sent a signal to his employees and other business leaders that this kind of behavior is normal and tolerable. Making a mistake and living up to it is almost as admirable as never making one at all.

"Making a decision that delivers a less than desired outcome is part of business life. Failing to take the time to understand your mistakes and learn from them is totally unacceptable."

Sokol seems like a tremendously talented businessman. He was an asset to Berkshire. Hopefully, he'll learn from this experience and find a calling where his talents are just as useful. Hopefully others will learn from the experience, too.

Fool contributor Morgan Housel owns shares of Berkshire Hathaway. Berkshire Hathaway is a Motley Fool Inside Value recommendation and a Motley Fool Stock Advisor selection. The Fool owns shares of Berkshire Hathaway. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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  • Report this Comment On April 04, 2011, at 11:16 AM, Huayra wrote:

    I understand the commotion surrounding David Sokol, as many evidently saw him as the likely successor to Warren Buffet, but I hear very few people talking about the competency of Ajit Jain.

    Warren Buffet and Charlie Munger have always spoken highly of the his accomplishments in running Berkshire Hathaway Assurance Corp.

    “He loves what he does, he’s not looking to take my job,” Buffett said recently at news conference in Bangalore. “If he was, the board of directors would probably put him in there in a minute.”

    “Ajit has probably made a lot more money for Berkshire Hathaway than I have,” Buffett said in his response to a question about whether Jain, 59, would succeed him. “I really feel about him like I would a brother or a son.” Jain didn’t immediately respond to a request for comment left with an assistant.

    Buffett once pointed out that Jain never exposes Berkshire to risks, which are inappropriate to the entity's resources . "By his accomplishments, he has added a great many billions of dollars to the value of Berkshire . Even kryptonite bounces off Ajit,".

    Time will tell, but it's safe to say that Berkshire will remain in good hands when Buffet eventually departs. You can rely on him to leave his legacy in very capable hands, that's for sure!

  • Report this Comment On April 04, 2011, at 11:24 AM, Illysa wrote:

    Great article -- especially because you take a candid yet respectful stance. Everyone makes mistakes. Sokol followed up the mistake with the right action. I can imagine that any company I thought was worth large sums of my own investment capital is a company in which others I care about may benefit from investing. It cannot be easy to be in these guys' shoes.

    Yet, those of us who teach ethics (and in Sokol's case, write about ethics) have to hold ourselves to the tightest standards and be constantly aware of our actions as they measure against our stated ethical beliefs. Thanks for the reminder, Morgan House.

  • Report this Comment On April 04, 2011, at 11:42 AM, cccisback wrote:

    David Sokol's resigning was the best thing he did for Berkshire following his great lapse of judgement.

    So moving forward is there any financial cost to Berkshire from Sokol's poor judgement? Fines on BRK? If so, at what impact on their financial statements?

    Besides Jain is there anyone else in Brk that could move into the lead position? Surely there is more than one person capable of taking the helm.

    Is Brk still the great company it was before sokol's flub? Do we investor's just have to sit out the decline in value or is this causing a significant decline for the extended future and we should sell now?

  • Report this Comment On April 04, 2011, at 1:49 PM, RegLeCrisp wrote:

    So how many other companies did Sokol buy after he had initiated a position? And how is this not insider trading? I know I didn't know that Berkshire was going to buy Lubrizol. Even if Sokol was not 100% sure it would be aquired, he certainly HAD inside information. If the SEC does not prosecute this sleezebag they are as bad as everyone assumes they are. This guy should go to the big house and Buffet should be the star witness. Buffet loves to puff his feathers and say 'lose me a shred of credibility and I will be merciless'. Does he have it in him? Not likely.

  • Report this Comment On April 04, 2011, at 2:42 PM, trin6810 wrote:

    I usually enjoy and often feel challenged by your articles - not so with this. What was his "mistake" - he put the wrong stock ticker in his buy program and didn't realize that he had purchsed Lubbrizol? He cheated and got caught. How could he not have known better.

  • Report this Comment On April 04, 2011, at 3:00 PM, Choccoins wrote:

    That "lack of planning and misguided foresight" netted him a cool 3 million.

    Just acknowledging a lapse of judgement is weak and speaks more to his true intentions. The fact is whilst he may not have had direct decision making in the purchase of Lubrizol, given his stature and position he certainly had a strong influence on that decision which would seem like inside trading to me.

    If Sokol is truly as ethical as his book would suggest the correct thing to do would be to give all $3 million he made to a charity.

  • Report this Comment On April 04, 2011, at 3:21 PM, RegLeCrisp wrote:

    I also feel sorry for Buffet here, he's long been the antidote for the stereotypical Wall Street titan/CEO greed head and then this guy decides to wipe his a$$ on Buffets face. It's really beyond belief that someone would be on the short list for the most enviable job in the investment world and then blow it all for what is probably a month's pay.

  • Report this Comment On April 04, 2011, at 3:44 PM, davaidesign wrote:

    Maybe Sokol didn't want the job at BRK, and did in fact wanted to resign, so he decided to do it with an extra 3 mil. in his pocket.

  • Report this Comment On April 04, 2011, at 4:39 PM, Mtnpicker65 wrote:

    sounds to me like you need to pass around the kool-aid. I read it that he knew it was a good deal

    whether or not Mr B did---I believe Mr B acknowledged that(unless he did it to pro tect his good name)

  • Report this Comment On April 04, 2011, at 5:03 PM, wasmick wrote:

    "Great article -- especially because you take a candid yet respectful stance."

    Why is a respectful stance called for here?

    What Sokol did was border line criminal (front running anyone?) and not even close to passing the smell test for ethical.

    If he wanted to make it right his options are:

    - hold a press conference owning up to exactly what he did

    - donate the money to charity

    He did neither. HIs resignation was a requirement, not a noble act. He put BH in danger with is actions and had he not resigned, should have been fired.

  • Report this Comment On April 04, 2011, at 5:23 PM, TotalReturnInv wrote:

    all good points, but really has anyone ever taken more heat for a 30% gain?

  • Report this Comment On April 04, 2011, at 5:29 PM, mouthbasso wrote:

    T

  • Report this Comment On April 04, 2011, at 5:37 PM, aldousworp wrote:

    Who did Sokol hurt? Would Berkshire's owners or Lubrizol's be better off if he hadn't told Buffet he liked Lubrizol? He should have disclosed his position as part of his pitch. If either side objected they could work out a settlement or cancel the takeover.

  • Report this Comment On April 04, 2011, at 5:46 PM, jc09058 wrote:

    Personal, I think he found a way to leave Berkshire that made sure the neither Mr. Buffett nor the Board would ask him to change his mind and stay on longer.

    As I understand the SEC rules on insider trading, I believe there is no issue, BUT I will qualify that with a strong desire for further review of the latest court cases. I think nothing worse than "questionable judgement" could be applied here and even that could be tenuous at best.

    Based on comments Mr. Sokol has made as to his reasons for leaving Berkshire, that a desire to build another Berkshire is not only possible but very likely to succeed. By Mr. Buffett's own words he has ignored areas he doesn't understand (nothing wrong with sticking with what you know), and therefore that means there are other quality companies out there waiting to be absorbed into another Berkshire-like company.

    To borrow an old friend/manger's statement to apply to Mr. Buffett, "He has picked all of the easy low hanging fruit and therefore it is time to climb higher to find other opportunities". - Tom Clark MBNA/Hallmark. I do believe that, Mr. Sokol wants to do just that and the best way to do it, is to have a large degree of separation between him and Berkshire Hathaway.

    But that begs a question of why is Mr. Sokol choose this way of doing it.

  • Report this Comment On April 04, 2011, at 5:58 PM, OPTIONNUT wrote:

    So why does Sokol not just clear his name and give the money to Habitat for Humanity...God knows he will never miss the money!

  • Report this Comment On April 04, 2011, at 6:13 PM, FoolishJeffery wrote:

    Sokol will not donate the proceeds. To resign from Berkshire is to say I disrespected my boss and my corporate ethic with an error in judgement.

    To donate the proceeds is making a much bigger mea culpa, one that would imply that he agrees there is some guilt or the gains were ill-gotten. Plus, it will just land him in the headlines again.

    It is not that he needs the money. From a PR perspective donating the gains makes the exact wrong statement.

  • Report this Comment On April 04, 2011, at 6:14 PM, beechtree1 wrote:

    Mr Sokol said in the CNBC interview: " Knowing today what I know, what I would do differently is I just would never have mentioned (Lubrizol) to Warren and just made my own investment and left it alone." As I understand it Citi were talking to David Sokol the Berkshire executive and not to Mr Sokol

    the private investor. I think that executives in positions such as David Sokol's at companies such

    as Berkshire should place their personal wealth in

    Blind Trusts, to avoid conflicts of interest.

  • Report this Comment On April 04, 2011, at 6:28 PM, stan8331 wrote:

    I can't go along with a description of this as simply poor judgment leading to an honest mistake. Sokol obviously knew he was going to make the pitch to Buffet before he bought the shares. When he made the pitch, he knew with certainty that if he succeeded in convincing Buffet to buy the company, his shares of Lubrizol would be sold for a substantial short-term profit unless he stepped forward and sold his position before the purchase of the company became public knowledge. He failed to take that step.

    If this scenario doesn't fit the current legal definition of insider trading, the law needs to be rewritten. Whether or not $3,000,000 is a significant sum of money to Sokol is completely irrelevant. It's definitely over the limit for a felony in all 50 states.

  • Report this Comment On April 04, 2011, at 6:36 PM, carefulinvestor wrote:

    Where to draw the line - if you bought a stock based on your analysis of its prospects and potential profitablity, then told your friend who also bought shares - is that illegal?

    If your friend was also your employer - would that be illegal?

    If your friend had megabucks and then bought the company, would your actions then be illegal, because your employer then became the company's owner?

    If your friend (and employer) owned a finanancial management company and bought shares, would that be illegal?

    The key detail is when Mr. Sokol knew about Mr. Buffet's plans to buy Lubrizol - was that before or after Mr. Sokol bought LZ shares? At face value, based on what was said, he bought LZ shares before and disclosed the holding to his employer.

  • Report this Comment On April 04, 2011, at 6:36 PM, DavesHere wrote:

    By all factual accounts, Sokol acted transparently, so the problem is not with insider activity. The problem is the poisonous mindset that can take control when working with money as both the tool and the product. Buffett has worked hard to innoculate himself, first by thinking of shareholders as "crippled relatives," and more recently, by giving his own personal fortune away to charity. The problem is that, working solely for his own account, Sokol showed that he could forget the crippled relatives who own Berkshire shares. Oh, and by the way, no one seems to want to credit the "see it in the newspaper" device, so allow me. It was coined by the late Garson Kanin, and first uttered by Judy Holiday in the movie, "Born Yesterday:" "My father used to say we should live every day like everything we do and say will show up on the front page of the New York Times."

  • Report this Comment On April 04, 2011, at 6:37 PM, carefulinvestor wrote:

    Would you be interested in a small financial services company that Mr. Sokol holds a signficant financial interest? Would you tell your friends and co-workers, if it were public infomation?

  • Report this Comment On April 04, 2011, at 6:44 PM, mweems44 wrote:

    I understand that Sokal was meeting with Citigroup to review some firms that Citi was shopping to Berkshire Hathaway. If this is the case, he received confidential company information as a BH representative and it was totally wrong to use that information to make a personal purchase. That is insider trading.

    Solal's retrospective comment that if he probably should not have recommended the firm to Buffet doesn't cut it either. Then he is cheating Buffet.

    I also understand that Buffet has talked Sokal out of resigning in the past. I bet He didn't try this time.

  • Report this Comment On April 04, 2011, at 6:46 PM, plange01 wrote:

    sokol and buffett are going to jail...

  • Report this Comment On April 04, 2011, at 7:01 PM, 1939johnmark wrote:

    Personally, I think the Fool, needs to focus on someone/something other than Warren Buffet. He made people wealthy 30 years ago. What's he done lately?

    John

  • Report this Comment On April 04, 2011, at 7:26 PM, TMFBuffjan wrote:

    Sokol could coach football at Ohio State University.

  • Report this Comment On April 04, 2011, at 7:28 PM, sstmyoung wrote:

    David Sokol made a horrible mistake in using poor judgment. However, more interestingly is how would the CEO of two BRK business units find the time to meet with investment bankers to research his own personal investments. The word on Sokol was that he was working "24/7", but clearly he was spending some if not a lot of his time on his personal stock portfolio. Further, it has been reported that he met with the investment bankers from Citigroup to discuss Lubrizol as a potential BRK target, but he then later stated that is was to evaluate the company as a personal investment. We should all be so lucky to get a private audience with a group of highly paid investment bankers so that they can vent our private investment decisions at no cost. Sokol was way over the line.

  • Report this Comment On April 04, 2011, at 7:39 PM, 102971 wrote:

    Sorry but I disagree with most of these comments.

    Sokol tried to get BH to buy Lubrizol BEFORE he made any purchases himself. He thought that it was a great buy for BH but he couldn't persuade Buffett so. Is it, therefore illegal or immoral for him to then be prepared to back his judgment with his own money? Most of the above comments seem to believe that he only tried to persuade Buffett to buy Lubrizol so that he could take a profit on HIS shares.

  • Report this Comment On April 04, 2011, at 7:43 PM, htn0812 wrote:

    The only explanation for Sokol's action is that greed must have gotten the best of him, it corroded and corrupted him from within and finally it shows itself.

  • Report this Comment On April 04, 2011, at 8:08 PM, joekirby wrote:

    From what I was able to read and I think I did read all the articles He did nothing wrong. He owned the shares before Buffett made a decision to buy. He told Buffett that he was a shaerholder. Why the rush to jump to conclusions. Sure lots of hate going around.

  • Report this Comment On April 04, 2011, at 8:32 PM, jweissman wrote:

    This isn't insider trading probably, but is it possible (yes) that Sokol exploited the older man? No need to protect father/son scenarios, Buffet perhaps was all too willing for a big idea to come his way, and apparently out of some almost touching trust (I am projecting after all) of Sokol, who is truly sleazy, jumped in, way sooner than he has with so many of his other investments, as well as those he passed on.

  • Report this Comment On April 04, 2011, at 9:05 PM, FoolSolo wrote:

    I just don't get the backlash on Sokol, I can't see what he did wrong.

    He finds an interesting company, does his homework, realizes it's a good bargain, so he buys some shares. He's so impressed by the company that he advises WB to buy the company. He disclosed he had shares in the company, so Buffet knew it already.

    I suppose if he really wanted to be clean and squeaky he could have sold all his shares before WB announced the sale. But why?

    This isn't the first time he resigned either, WB talked him out of resigning a couple of times before, so the guy already had one foot out the door.

  • Report this Comment On April 04, 2011, at 9:06 PM, EquityBull wrote:

    Sokol did have insider information not when he bought the shares but at a time he held them. Let me explain.

    Sokol buys the shares without any insider knowledge. Next he tells Buffett about Lubrizol. At some point Sokol KNOWS Berkshire is going to buy Lubrizol at a premium. It is at this moment he is privy to insider information that nobody knows. He knows his shares are not at risk and furthermore he will be bought out at a premium. This is something nobody outside of Berkshire knows. It is not public.

    So at this time Sokol will of course hold onto his shares because he knows something nobody else does. Any other investor at this moment would have to wonder if they should buy more, hold on or sell everything based on what is publically available. I am sure people sold Lubrizol between the time Sokol learned of the pending buyout and the time it went public. Why did any of those people sell you ask? Because they did not have the same information Sokol had. He knew to hold on for reasons that were not public. This is where he derailed.

    In this case Sokol did not front run the stock. He back runned it. Certainly something that does not happen often. I don't think it is that big a deal in the large scheme of things. Why would the SEC bother to crawl up his butt when they ignored Madoff for many years even when his 60 billion ponzi was served up to them on a silver platter how many times? SEC should go after the real criminals. That isn't martha stewart, Sokol or Mark Cuban. It's the Madoff's and the Raja Rajatmaran's of the world

  • Report this Comment On April 04, 2011, at 9:11 PM, MUDFLAP514 wrote:

    Let's not be holier than thou. How do you think these wall streeter make their money? Raj Rajaratnam got greedy and he wasn't discreet!.

  • Report this Comment On April 05, 2011, at 1:32 AM, SPARTANBURG wrote:

    Isn't nice to argue on how Sokol's purchase was out of bounce or within ethical territory. With all the illegal stuff going on, this case feels more like something out of the 1950s where people still did bad things but in a relatively casual manner.

  • Report this Comment On April 05, 2011, at 2:04 AM, lowmaple wrote:

    I look at this story in this light : If I knew what sokol knew I could have made a fortune buying options so I have been cheated since he didn't tell us. Unlike him we do need that money.

  • Report this Comment On April 05, 2011, at 3:24 AM, optimist911 wrote:

    Yesterday's Wall St. Journal Report had a piece on why hypocrisy is simply part of human nature as one of many survival strategies. Essentially, the idea is to try to prevent others from doing what works well for you. For example, the leader of a tribe may profess the virtues of monogamy while impregnating as many females as he can get his hands on, so that his genes prosper while others suffer reproductively. Analogously, some rail against unethical trading and then themselves engage in it. Remember, it's always all about the money, not ethics.

  • Report this Comment On April 05, 2011, at 6:46 AM, 9sec93lx wrote:

    Nobody will go to jail for this.Even though they should. These people have money, rich people never go to jail. It's OJ justice as I call it.Only reason Madoff went to jail is because he ripped off the wrong rich people. He (Sokol) made 3 million dollars by buying 96,000 shares of a stock he then recommended to Buffett. He didn't tell anyone else about this deal, so we all couldn't profit as well. This IS insider trading in the purest sense. Proving what he and Buffett talked about will be impossible. Do you think either one will implicate the other? I think not.

  • Report this Comment On April 05, 2011, at 9:48 AM, wasmick wrote:

    Some of the comments are hilarious. It amazes the lenghts folks will go to in order to absolve the Buffett, BH or both.

    Usually one needs to question gold or Apple to get this kind of irrational defensiveness.

    Keep up the good work!

  • Report this Comment On April 05, 2011, at 10:10 AM, RegLeCrisp wrote:

    Another issue that seems to be overlooked in this misguided defense of Sokol is the fact that Citi showed him a list of companies on the block or at least open to being purchased BEFORE he made his purchase. That's a very compelling INSIDER advantage, especially for a guy fluent in M&A and able to determine which companies appear most attractive and likely to be bought at hefty premium.

  • Report this Comment On April 05, 2011, at 11:45 AM, FelixHoenikker wrote:

    Had he disclosed his position prior to making the pitch to Berkshire to buy Lubrizol, would there be an ethical lapse? Or would these be frowned upon by WB sp he kept quiet?

  • Report this Comment On April 05, 2011, at 2:26 PM, samedge2 wrote:

    @wasmick: Agreed. The only thing that would improve the entertainment of this string of commentary and the overall scenario was if Sirius XM was the security in question (talk about irrational).

    This comment board would crash TMF's servers in that case!

  • Report this Comment On April 05, 2011, at 7:34 PM, beechtree1 wrote:

    The mind boggles. Has Mr Buffett done something to offend David Sokol and is he thus taking revenge on him? Is David Sokol going through his existential crisis and he's lost judgement? He certainly ruined his personal reputation for good. His conduct reminds me of actions of employees at my office who felt threatened, insecure their "invaluable" contribution to our firm inadequately appreciated, and set up their own business to vindicate themselves. As I recall, they all eventually realized that the person at the top is there because they are the glue that holds everything together, and because they've been there the longest having built it from the bottom up. It's a different feeling when you feel it belongs to you.

  • Report this Comment On April 05, 2011, at 11:12 PM, FoolSolo wrote:

    I think the definition of insider trading is often confused as illegal activity. Perhaps it would be useful to see the SEC's official definition of insider trading:

    http://www.sec.gov/answers/insider.htm

    [QUOTE]

    Rule 10b5-1 provides that a person trades on the basis of material nonpublic information if a trader is "aware" of the material nonpublic information when making the purchase or sale.

    [/QUOTE]

    One could actually argue that once it became known to Sokol that BKH was going to buy Lubrizol, he would have been committing insider trading had he sold his shares.

  • Report this Comment On April 06, 2011, at 9:06 AM, Mccldwll wrote:

    IMO, nothing about this entire story passes the fragrance test:

    1) Sokol, a seasoned player, didn't know he was wearing his BRK hat when learned about LZ?

    2) BRK didn't have a written policy regarding stock ownership disclosure for acquisition targets?

    3) Buffett didn't ask how much LZ Sokol owned and when Sokol bought it?

    4) Nothing was ever discussed at BRK about Munger's 3% ownership before the China deal?

    The entire fairy tale collapses if you reject the "magic beans" story, and instead consider that everyone at the top of BRK knew exactly what was going on AND that this was business as usual and condoned--a way for top BRK execs to supplement their income that didn't come out of BRK's pocket--in exchange for finding/ shepherding deals. But, it all blew up when some outsider found out about Sokol's windfall and Sokol had to fall on his sword. So which makes more sense--the fairy tale version or the cold Wall Street business as usual version?

  • Report this Comment On April 06, 2011, at 5:57 PM, FoolSolo wrote:

    Look, we're talking about Wall Street here. Sure, maybe Sokol is dirty, and maybe he and the FDA chemist; Cheng Yi Liang should be cell buddies for a few months. But this silly little witch hunt is just too little too late for me. If the SEC wants to throw the book at these little fish, then great. But what about the really big crooks?

    The big cahunas like AIG derivatives chief; Joe Cassano, or Lehman chief Dick "The Gorilla" Fuld, along with their partners in crime from Goldman, Morgan Stanley, Bank of America, Merril Lynch, et. al. bilked $billions from unsuspecting investors, brought the world economy to the brink of collapse and chaos, but every one of them silently walked away with salaries and bonuses that are bigger than the GDP of half the countries in the world. These are the real crooks. Read about it in Rolling Stone:

    http://www.rollingstone.com/politics/news/why-isnt-wall-stre...

    Slamming little guys like Sokol, Liang or even Rajaratnam is a drop in an ocean. The SEC, the Justice department, the Fed, the Treasury and the big brokers on Wall Street are all in bed together, covering for each other, and patting each other on the back, while they cheat us all out of $trillions.

    Sorry, I just can't get excited over Sokol making $3 million in a trade nobody really cares about.

  • Report this Comment On April 08, 2011, at 9:58 AM, ziq wrote:

    @carefulinvestor and others: I don't think the article adequately explains the problems here. It's one thing to use the same information available to everyone else to find yourself a good investment and then tell your friend about it. It's quite another when your "friend" happens to be such a large investor that his purchase can have a large influence on the asking price by simple supply and demand alone, and when you have significant influence on that "friend". One could do worse than simply following some or all of Buffett's purchases, but better still if one knew them in advance.

    Sokol may be a small fish in a corrupt sea, but it doesn't help that he worked for someone who poses as the paragon of clean investing--just as Elliot Spitzer may have survived his political scandal if he hadn't posed as the enemy of prostitution rings. Falling on the sword was the right thing for Sokol to do. Giving up his profit would have been more right, obviously.

  • Report this Comment On April 08, 2011, at 4:38 PM, FoolSolo wrote:

    @zig

    I don't see how your "friend" analogy changes anything. Having been a member of Motley Fool Pro for the past couple of weeks, I see when the Pro issues a buy recommendation, the price of the stock goes up as all the Fools pile in. Just because I know my fellow fools are creating a short-term spike in demand doesn't make me an inside trader.

    The SEC states insider trading involves having privileged information that is not available to common investors, and actually executing a buy or sell order on the stock. Sokol did not execute a either a buy or sell after he discovered the information, so by SEC's measuring stick, he did nothing wrong. Now, Sokol did in fact know that Berkshire was going to buy Lubrizol when he bought the stock, that might be a bit more sticky. So, the real question is what info did Sokol have when he executed his trades.

  • Report this Comment On April 10, 2011, at 4:04 AM, ET69 wrote:

    Capitalism and ethics? What an oxymoron!

  • Report this Comment On April 10, 2011, at 11:48 PM, GainesvilleFool wrote:

    It seems to me that since Sokol could not be charged with insider trading. He neither bought nor sold Lubrizol shares after he learned Berkshire planned to buy the company. I would think that if he could be charged with anything it would be "Front Running" and if I understand the sequence of events correctly even that charge would not hold water.

    I happened to be watching CNBC the morning he offered his explaniation of what happened. He said he bought a small position in Lubrizol in December, 2010 for his own portfolio and then came to realize the company would be a good prospective purchace for Berkshire. He presented the idea to Buffet and told him he had already bought a few shares for himself. Buffet considered the idea and told Sokol he didn't agree with him. Sokol didn't explain why Buffet didn't like the idea. Sokol said at that point he was so convinced Lubrizol was a good buy he decided if Buffet wasn't going to buy it he would buy 96,000 more shares for himself and did so in early January. Sometime later (a few days to a couple of weeks) Buffet, perhaps after closer examination of the numbers, changed his mind and decided to buy the company. I don't recall if Sokol said he told Buffet at that point he had already purchased the additional 96,000 shares or not, but in any event neither of the Sokol purchases could have been based on inside information. The information didn't exist at the time the purchases were made. If Sokol's explaination is correct (truthfull) I doubt The SEC can charge either Sokol or Buffet with anything. If Solkol is lying then all bets are off.

  • Report this Comment On April 11, 2011, at 1:17 PM, mcubed101 wrote:

    The Sokol Lubrizol purchase was more than an ethical lapse. It was

    also a clear violation of well-established state corporate law

    imposing a duty of loyalty on corporate directors and officers.

    That duty prohibits an officer from taking advantage of information or opportunities that he or she (a) learns of in their corporate capacity (that happened here; Mr. Sokol learned of the Lubrizol opportunity from Citigroup bankers who were approaching BH, not Mr.

    Sokol); and (b) knows may be of interest to his employer (certainly true here; Mr. Sokol planned to make the Lubrizol recommendation

    himself to Warren Buffett). Mr. Sokol had no right to exploit his

    corporate position for personal gain instead of assuring that BH would enjoy all gains from the Lubrizol opportunity. That is precisely what he did here, although he may not have felt that way at the time because he was uncertain whether BH would ultimately be interested in

    acquiring Lubrizol. His mistake was in purchasing shares before

    Warren Buffett had reviewed the opportunity and determined whether BH

    was interested in acquiring Lubrizol. The proper way for this matter to be resolved is

    for Mr. Sokol to agree to pay over to BH any profits he realizes from his Lubrizol shares that arise from the BH acquisition announcement. It is unfortunate that Warren Buffett felt impelled to put out a public statement that he did not believe Mr. Sokol had done anything unlawful in this case. Mr. Buffett probably had in mind SEC disclosure obligations. He

    was apparently not thinking about the corporate duty of loyalty, which is also a legal obligation of Mr. Sokol and all other BH directors and officers.

  • Report this Comment On April 21, 2011, at 12:36 PM, EthanF wrote:

    I think this presents a dent in the perfect armor. These insider trading cases are so difficult, even Raj's case might be a non-conviction. They were talking about this on CNBC and had Bob Anello on. http://www.lawyers.com/New-York/New-York/Robert-J.-Anello-48...

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  • Report this Comment On January 21, 2014, at 8:44 PM, georgepuzo42 wrote:

    I have to say, I am so tired of seeing what money does to people and how it influences their actions. Though I give respect for owning up to his mistake and resigning even though it probably was insider trading.

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  • Report this Comment On January 31, 2014, at 6:10 PM, seamuslowe53 wrote:

    Money is a good thing and a risky thing. It can help build things, but can tear people down as well. There's always a chance that it can happen to anyone.

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  • Report this Comment On February 04, 2014, at 7:01 PM, jleavitt84 wrote:

    I know that some people don't really like receiving advice, but I love receiving advice. I feel like when someone gives me advice, it's because they care about me. I ask for advice as often as possible, but I also love it when I get advice when I don't ask for it.

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  • Report this Comment On March 21, 2014, at 1:23 PM, mansonjak wrote:

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  • Report this Comment On April 03, 2014, at 11:47 PM, bills8091 wrote:

    It's interesting that he had advice on this in a book he wrote before his mistake. I wonder why he ended up doing this. I hope I never find myself in a similar situation.

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  • Report this Comment On April 04, 2014, at 12:54 PM, JasonKnighte wrote:

    It is always interesting when people give advice that they don't follow themselves. I know a lot of people that would be in a better situation right now if they followed the advice that they gave me. I am just happy that I have a good business ethic because even if I am not rich I am still happy with myself and where I am.

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  • Report this Comment On April 04, 2014, at 3:34 PM, bryanflake1984 wrote:

    I wonder what the future will hold for him? He did something wrong it seems, then he tried to correct it by quitting his post. I would assume that even if he gets in some legal trouble, that the law would be lenient since he did try to correct an error of his ways.

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