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Warren Buffett’s PR Nightmare: The Sokol Saga Continues

Aaron Task
Daily Ticker

"If questioned about this matter in the future, I will simply refer the questioner back to this release," Warren Buffett declared last week when he announced David Sokol's resignation.

Buffett may have wanted to have the last word, but the controversy isn't going away.

Buffett's claim that Sokol did nothing "unlawful" remains to be determined. The SEC is reportedly weighing an investigation of Sokol's trading in Lubrizol shares ahead of Berkshire Hathaway's bid for the company last month.

However, Sokol clearly violated Berkshire Hathaway's policy that bars company officials from trading in public companies "that may be involved in a significant transaction with Berkshire," The WSJ reports.

The key issue here is that Sokol first acquired Lubrizol shares in December after being pitched the company by Berkshire's bankers at Citigroup. (See: Did Buffett Blow It? The Sokol Story Doesn't Add Up )

Because of the nature of the meeting -- a top Berkshire executive meeting with the firm's M&A bankers -- it's unfair to compare Sokol's Lubrizol trades with Charlie Munger's position in BYD, as some apologists have done. Munger reportedly owned BYD "for years" in a personal account prior to Berkshire's purchase. By contrast, Sokol's fiduciary duty was to the firm and its shareholders in this case, not his personal portfolio.

Buffett: Myth vs. Reality

Given that, Buffett's public statements visa vis Sokol's trades are hard to fathom. If Sokol violated Berkshire's policy, why did Buffett defend his rumored successor and not fire him "for cause"? And does Buffet really think anyone will believe the Lubrizol trades were "not a factor in [Sokol's] decision to resign," as he claimed last week?

Having been the beneficiary of largely glowing coverage over the years — some it deserved — perhaps Buffett has started to believe his own press clippings.

Of course, some of this is our own fault. It was naïve to think that Buffett could become one of the world's richest men merely by being a nice guy who outworked and outsmarted the competition. Arguably, he's done as good a job managing the media as his portfolio, as another legendary investor — Michael Steinhardt — suggested on CNBC this week.

But no one is above reproach or above the law and it seems like the time has (finally) come for the investing public — and once-fawning journalists — to ask: Is Buffett's image as a purveyor of "homespun wisdom" reality or merely just spin? (See: Will the Real Warren Buffett Please Stand Up? )

Aaron Task is the host of The Daily Ticker. You can follow him on Twitter at @atask or email him at altask@yahoo.com

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