More On Legal & Compliancefrom The Advisor's Professional Library
- The Few and the Proud: Chief Compliance Officers CCOs make significant contributions to success of an RIA, designing and implementing compliance programs that prevent, detect and correct securities law violations. When major compliance problems occur at firms, CCOs will likely receive regulatory consequences.
- Nothing but the Best Execution Along with the many other fiduciary obligations owed by RIAs, firms owe a duty to seek best execution of clients transactions. If they fail to do, RIAs violate Section 206 of the Investment Advisers Act.
In a turnaround for the company founded by Warren Buffett, Berkshire Hathaway may be considering suing David L. Sokol over Lubrizol. Berkshire directors said that the former heir apparent to Buffett misled the company over his ownership stake in Lubrizol, which was set for acquisition by Berkshire.
The New York Times reported that although the company had previously refrained from criticizing Sokol over the deal and the circumstances that came to light after the acquisition was announced on March 14, that changed after a report by the company’s audit committee that was released on Wednesday. Sokol, it said, had learned of Lubrizol through Citigroup bankers, who pitched the company as a possible acquisition target, and Sokol subsequently acquired a substantial block of shares in the company before approaching Buffett about the potential deal.
According to the report, Sokol failed to disclose the full circumstances around Lubrizol and his stake in the company. Instead, his conversations with Buffett were “intended to deceive” and “its effect was to mislead,” which led to the company’s reversal of its position on Sokol himself.
The report says of Sokol, in part, “His misleadingly incomplete disclosures to Berkshire Hathaway senior management concerning those purchases violated the duty of candor he owed the company.” It also says that Sokol may have failed In his fiduciary duty to Berkshire under Delaware law, the state in which Berkshire is incorporated.
Sokol’s attorney, Barry W. Levine of Dickstein Shapiro, disputes a number of statements in the report, and issued a statement saying, “I am profoundly disappointed that the audit committee of Berkshire Hathaway would authorize the issuance of its report to the public without the care and decency to ask even a single question of Mr. Sokol.”
However, Ronald L. Olson of Munger, Tolles & Olson, Buffett’s outside law firm, said that Sokol had been offered, through his attorney, the chance to be interviewed by the audit committee and had refused.
According to the report, the board and the audit committee are considering “possible legal action against Mr. Sokol to recover any damage the company has sustained, or his trading profits.”