Warren Buffett Faces Insider Trading: A Case Study

In March 2011, Warren Buffett stepped into chaos. The Chairman of one of Berkshire Hathaway subsidiaries, David Sokol, had resigned his position, but there was more to the story.

Billionaire Warren Buffett has amassed a large following among those in the investment world and the numerous shareholders of Berkshire Hathaway. Headquartered in Omaha, Nebraska, Berkshire Hathaway operates as a conglomerate that owns and operates businesses with familiar brand names like Fruit of the Loom, GEICO, Dairy Queen and Duracell. It also operates a large marketable securities portfolio run by Buffett. Some top equity holdings are Co- ca-Cola, Bank of America, American Express, Wells Fargo and Kraft Heinz.
Buffett learns days after the public announcement of the all-cash deal to acquire Lubrizol, that his top executive, David Sokol, has potentially committed insider trading. Sokol resigns from his position unexpectedly. In rank, Sokol is behind Charlie Munger, Buffett’s long-time business partner. Sokol is Chairman of sever- al Berkshire subsidiaries and has had a long, successful relationship working with Buffett. In fact, Sokol is considered Buffett’s protégé and the lead candidate to replace Buffett upon retirement.
In a March 30, 2011 press release, Buffett states, “in our first talk about Lubrizol, Dave
Sokol mentioned that he owned stock in the company. It was a passing remark and I did not ask him about the date of his purchase or the extent of his holdings” (Business Wire, March 30, 2011).
How does Buffett respond?

Authors: Christian Koch

Link: https://doi.org/10.28945/4631

Cite as: Koch, C. (2020). Warren Buffett faces insider trading: A case study. Muma Business Review 4(16). 143-156. https://doi.org/10.28945/4631