We Expect More From An Oracle

These days, the supposed saint of the investing world, Warren Buffett, looks as much a sinner as anyone else on Wall Street.

That’s because Buffett, nicknamed the “Oracle of Omaha” for his calm, good sense and spectacular investing results, is turning a blind eye to the shady dealings of one of his top deputies.

Last week, it was revealed that David Sokol, the CFO of Buffett’s Berkshire Hathaway and the man often rumored to be Buffett’s successor, bought about $10 million in stock in a company called Lubrizol and then almost immediately recommended to Buffet that Berkshire buy the whole company. According to their public statement, Sokol mentioned “in passing” to Buffett that he held some Lubrizol stock during the initial conversation. After a few weeks Sokol persuaded Buffett to go ahead with the deal, Berkshire agreed to buy Lubrizol for $135 per share, and Sokol hauled in a cool $3 million profit. Last week, Sokol resigned from Berkshire to, ahem, concentrate on his “philanthropic interests.”

As we’ve been pointing out month after month on this blog, such insidious conflicts of interest are nothing new on Wall Street. This is how the game works. The insiders get buckets of cream, and the rest of us are left with cartons of sour milk.

As noted Wall Street Journal columnist Jason Zweig recently pointed out, these conflicts are “pervasive” in the financial services world. Zweig wrote: “In the past few weeks alone, a chemist at the Food and Drug Administration was charged with trading on confidential information about drug approvals; a former Goldman Sachs director has been accused of leaking secrets to hedge-fund manager Raj Rajaratnam; and Rajaratnam has gone on trial for allegedly masterminding an insider-trading ring. The director and the hedge-fund manager maintain their innocence; the chemist hasn’t yet been arraigned.”

Now add Sokol to the list, and Wall Street has a score card that would make a mob capo blush!

It’s common to think of Wall Street as some grand institution with the best and the brightest working behind the scenes to find innovative solutions to financial problems. That is what the investment banks would like the mom and pop investor to believe. The perception helps them sell their ginned up, expensive, made-to-fail products.

In reality, Wall Street is only as good as the people who work there. And, as you can see from the recent headlines, some of the highest ranking people on Wall Street simply cannot be trusted.

Warren Buffett is supposed to be better than that. We hope that he is. But when he announced Sokol’s resignation, he praised him, claimed the Lubrizol trades were not “in any way unlawful” and said that the resignation came as a “total surprise.”

Sorry, Mr. Buffett. We expect more from an oracle.

About Jacob H. Zamansky 57 Articles

Jacob (”Jake”) H. Zamansky is one of the country’s foremost authorities on securities arbitration law, the legal recourse for investors claiming broker wrongdoing, or for brokers claiming wrongful termination or other misconduct by their employer. Zamansky & Associates, the New York-based law firm he founded, represents both individuals and institutions in complex securities, hedge fund, and employment arbitrations.

Mr. Zamansky was at the forefront of recent efforts to “clean up” Wall Street. In 2001, he successfully sued former Merrill Lynch analyst Henry Blodget on behalf of a New York pediatrician misled by Blodget’s stock research. The case’s successful resolution was the catalyst for New York Attorney General Elliot Spitzer to investigate the conflicts of interest on Wall Street and resulted in the well-reported $1.4 billion Global Settlement, which included many of the biggest names on Wall Street.

More recently, Mr. Zamansky is one of the leading litigators and opinion leaders of the subprime mortgage crisis and the related hedge fund collapses, representing both investors and mortgage borrowers who were defrauded by Wall Street firms and mortgage lenders. Among Mr. Zamansky’s early actions is filing the first arbitration case on behalf of institutional and high net worth investors against Bear Stearns Asset Management with regard to the two hedge funds which collapsed as a result of exposure to subprime mortgage backed securities. He also has filed claims on behalf of individual investors victimized by brokers that steered their portfolios into unsuitable subprime stocks and mortgage borrowers who were fraudulently coerced into inappropriate mortgage and investment transactions.

Earlier in his career, Mr. Zamansky worked for more than 30 years as a litigator, including positions at Skadden Arps, Slate, Meagher and Flom LLP. His tenure also included serving as a federal prosecutor with the Federal Trade Commission.

A native of Philadelphia, Mr. Zamansky has been a frequent expert commentator on CNBC, CNN, and FOX News and has published opinion pieces in The Wall Street Journal, Financial Times and USA Today. He is regularly quoted and his cases have been chronicled in major financial and news publications including The New York Times, USA Today, The Washington Post, BusinessWeek, Fortune and Forbes. He is a frequent lecturer for industry and legal groups around the country. He also writes a blog that can be viewed here.

Visit: Zamansky & Associates

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