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Warren Buffett No. 2′s “Inside Trade” Wasn’t Illegal And Shouldn’t Be Prosecuted, Says Tamny

Warren Buffett's heir apparent at Berkshire Hathaway, David Sokol, resigned suddenly last week amid questions about insider trading.

Sokol's trading in a company that Berkshire subsequently bought, Lubrizol, seemed to many on Wall Street to have crossed an ethical and perhaps even legal line.

After hearing a recommendation from bankers that Berkshire buy Lubrizol, Sokol bought the stock himself before taking the idea to Buffett. In so doing, many argue, he put his own personal interest ahead of Berkshire Hathaway's. He also, arguably, traded while in possession of material non-public information (that Berkshire might consider buying the company).

But Sokol's trade didn't hurt anyone, argues John Tamny, the editor of Real Clear Markets. And Berkshire shareholders should take Sokol's putting his money where his mouth was as a sign that he really believed Berkshire buying Lubrizol was a good idea. So Sokol shouldn't be prosecuted.

Tamny believes that insider trading laws should be abolished, on the grounds that they are vague and inconsistent. Tamny also believes that insider trading helps, rather than hurts, individual investors, because it results in information more quickly being factored into stock prices.

<i>What do you think? Is David Sokol guilty of insider trading?</i>

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