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.