Warren Buffett Quotes

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Thursday, 31 March 2011

David Sokol Explains his Resignation

Warren Buffett - Video Reaction to David Sokol's Resignation

UPDATE : David Sokol, Warren Buffett and Berkshire Hathaway are being sued by a Berkshire Hathaway shareholder - see details here David Sokol
David Sokol and Warren Buffett
David Sokol has just been on CNBC for nearly half an hour non-stop (no ad. breaks !) which has got to be a first in itself. 

For Warren Buffett's CNBC interview re. David Sokol's trades see - Warren Buffett CNBC Interview

Harvey Pitt has just said on CNBC that it was "terrible" and a failure in fiduciary duties, and he should have realized he was 'dis-serving' the people he worked for.The panel was very scathing about Mr Sokol's behavior.

Joe Kernan on CNBC just made a comment that the people who sold the shares to Mr Sokol were not privy to the same information that Mr Sokol was.

In yesterday's interview with CNBC Mr Sokol said

Re. his resignation from Berkshire Hathaway:-
He has been thinking about it for around 2 and a half years
He offered his resignation twice before but was talken out of it by Warren Buffett
He doesn't see Warren Buffett going anywhere soon
He wants to set up his own sort of company - a mini-Berkshire Hathaway
NetJets can manage fine without him
Re. Lubrizol shares
He doesn't think he did anything wrong
He bought shares in Lubrizol for the 2nd time on Jan 5, 6 and 7
Spoke to Warren Buffett about Lubrizol for the first time on Jan. 14
Did not think Warren Buffett seemed very interested in Lubrizol
Once negotations started he didn't think it would be appropriate to sell the shares
Warren Buffett did not react in any particular way when he was told of the quantities of the shares purchased
Timing of his regination has nothing to do with the share purchase
He was surprised by the speed of the Lubrizol transaction

Here's a video showing what then guys at Breakout think

David Sokol, seen by many as one of the main candidates to succeed Warren Buffett at the head of Berkshire Hathaway, has surprised everybody (including Warren Buffett himself) by resigning after helping negotiate the purchase of a company whose shares he had bought. Sokol, bought about 96,000 shares in Lubrizol Corp. before recommending it as a takeover target, Warren Buffett said. Buffett said he didn't ask Sokol to resign and that Sokol's stock purchases were perfectly legal. Lubrizol, a maker of engine lubricants, was bought this month by Berkshire for about $9 billion.

It would appear that, according to Daniel Genter, President of RNC Genter Capital Management in Los Angeles,
“The SEC is going to at that deal to check for insider buying and selling, so if there’s an issue the time to clean it up is now.”

Berkshire Class B shares fell 3% to $82.90 in extended trading after the announcement. David Sokol was chairman of Berkshire’s MidAmerican Energy Holdings and its roofing unit Johns Manville, and CEO of NetJets Inc., Berkshire’s luxury-flight subsidiary.

Sokol may have realized a profit of around $3 million from the 96,060 Lubrizol shares he bought on Jan. 5, 6 and 7, less than 2 weeks before suggesting that Berkshire buy the company.

Lawrence G. McDonald, President of McDonald Advisory Group said
“It’s just a classic case of someone not fitting into that Buffett culture. That’s the type of thing you might do at another hedge fund, but you don’t do it at Berkshire.”
Sokol joined Berkshire in 2000 when he sold MidAmerican to Buffett for about $9 billion.

According to David Kass, Professor at the Robert H. Smith School of Business.
“He was the heir apparent. The exercise of his recommending Lubrizol to Warren Buffett was like a CEO in training.”

Sokol told Buffett he was a shareholder in Lubrizol, when they first discussed a possible deal, according to a statement released yesterday.
“It was a passing remark and I did not ask him about the date of his purchase or the extent of his holdings,” Warren Buffett said. He learned about the size and dates of the purchases “shortly before I left for Asia on March 19.”

Berkshire has said it has four candidates to take over from Buffett as CEO, but has not publicly identified them. Many investors think Sokol was the most likely successor. On March 23, Buffett said in India that Ajit Jain, would win the support of directors if he decided to seek the top job.

Buffett also said that he hasn’t asked for Sokol’s resignation and it came as a surprise. Berkshire is “far more valuable today” because of Sokol’s service, he said.

Jacob Frenkel, attorney at Shulman Rogers Gandal Pordy & Ecker and former SEC lawyer said
“If all we have here are purchases before making a recommendation, and the decision to pursue an acquisition doesn’t commence until after the transactions are completed, that wouldn’t satisfy the definition of insider trading.”

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