Wednesday, April 27, 2011

Update on Sokol

The WSJ today reports that the audit committee of Berkshire Hathaway, Warren Buffet's company, undertook and completed an investigation of the Sokol matter. The committee's report, as described in pertinent part in the WSJ article, is as follows:

Mr. Sokol's "purchases of Lubrizol shares while serving as a representative of Berkshire Hathaway in connection with a possible business combination with Lubrizol violated company policies, including Berkshire Hathaway's Code of Business Conduct and Ethics and its Insider Trading Policies and Procedures," the audit committee wrote in its report. "His misleadingly incomplete disclosures to Berkshire Hathaway senior management concerning those purchases violated the duty of candor he owed the Company," the committee added.

Mr. Sokol's remarks "did not satisfy the duty of full disclosure inherent in the Berkshire Hathaway policies and mandated by state law," the report concluded.

"His remark to Mr. Buffett in January, revealing only that he owned some Lubrizol stock, did not tell Mr. Buffett what he needed to know. … [I]ts effect was to mislead: it implied that Mr. Sokol owned the stock before he began considering Lubrizol as an acquisition candidate, when the truth was the reverse."

See my earlier posts on this matter, first here and then here.

I am interested in the significance of the phrase "mandated by state law" that the audit committee used to describe the standards that Mr. Sokol breached. I am also interested in the penalties under that law that would follow a breach of its standards.

Pertinent to all this is the following from an April 2 report on the Bloomberg Business Week website:

The U.S. Securities and Exchange Commission is probing whether Sokol bought Lubrizol shares on inside information, said a person with knowledge of the matter who declined to be identified because the investigation is secret. The SEC is seeking records from Sokol’s brokerage and examining trading data from the Financial Industry Regulatory Authority, the person said.

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