What makes businesses and financial markets thrive? How do we oarn investor confidence? The answer is trust Trust can only be bult through ethical behavior and an industry-wide commitment to values like transparency. integrity, candor, and putting investors first. Ethical behavior goes beyond simply foliowing laws and ostablished rules It is about knowing how to navigate ambiguous ethical situations and put the interests of investors first when the rules are unciear Roviow the CFA institute's Code of Ethics and Standards of Professional Conducts to oddress the questions listod on page / of the "Buying Lubrizol David Sokols Trades and the CFA Institute Standards of Professional Conduct" case study. Your answors should reflect a good understandings of the Code of Ethics and Standards of Protessional Conducts Suggested length. 3 double-space pages. 12-point font Buying Lubrizol: David Sokol's Trades and the CFA Institute Standards of Professional Conduct by OORDTHY C. KELLY, CFA winder the CPA Inutitute Code af Ethia and Stan. 5. Heip CFA danntaiden and onililuse in the CFA Progrem enlast behidat for conplistin of luk af ceordianet with tee CFS Inatiese Cods of atablints of podesciant conduat ean promide gidh. ance for mutofithg carem rish eitiacmisinut Thomine at Lrente (1) Deiviner the In emen danest pet with the Lititulburl 14Mint 15 Muti 11N Maid BRCKCROUND they were not if fator in bis Secialen to renden: matdy 547 hillien. 31 Mank, Soloul docharnh, "Khowime today what I kenow, to reemphakize the holding compunys top priority In what I woild do diffcrestly is I fust would sever have the July 2010 memo, he wote, "The priority ir that all mentioned it to Wamen and jort made my own irneitment of ts oontione to zealcaly guaal Berkahiret reputatlon. and left it alone. I thiak thatk a diservice to Birkahire, tat. We cant be perfect, bet we can ory to be. A. Ihe sald in if that' what poople want 10 do in the fucure, that' fine. theic menos for moec than 25 yean: We can afford to You cant, of at leant I Jont think yoe can, ack enocutiver lowe moncy-even a loe of moocy Bue we cant afford to not invor their own fimily's capial in a company that to lose neputition-tren a thred of reputation.'We nue? Bekahise had no interos (in), of exen laowiodge of, and continue to meaure ceery act asainat not enly what is somelow poliee that. The enly thing you can do in jat Ingal bet alio what we woakd be happy go have writsen ay. lf you imest yoer ewi mosy, dont ever meakon it aboat on the front page of a national newpyuper in an WARREM BUFFETT AMD BERKSHIRE HATHAWAY Aed Fith atites that employeer "ate prokiGited froob Aecibes, Bulfett had tumed Berkhite, if filling tavile. treoph the use of cogponse property information, of property, isformation or peilekon for impeiger gernons bawd on book vilor per thate, which clinhent from 319 . gavin and no enoplyere may congete with the Cenpeny tyverione thitich 11 March, Sokol dodard, 'Knowing today what I knowy, to reenphaike the holding compinyy top piority. In what I woild do aiffcently is 1 fast would rever have the July 2010 menso, he wotote, "The priority is that all and leftit alone. I think that a dinervise to Brikching, but We cant be peifect, but we ean try to be-As Tve said in if that what people want to do in the futse, thark tine. theie memis for mose than 25 year ' We can afford to to rec inveat their own fancilyk capital in a compony that to lose reperation-even a shred of reperation. WWe mun? Berkibire hab no intered [io], or cven imoviadge of, and coetinse to measure cvery act apainst not oaly what is somchow police thas. The only thing you cas do at for legal bet aloo what we woud be happy to have written ay, if you imez your oun moery, doek ever miention it aboat on the front puge of a national newnpaper in an to anyoody at Bethatiste. That docut make senue tas mie article written by an unfriendly bur intelligent rrportet" cither, but thatk certainly what it wumbl Bken " WARREN BUFFETT AND BERKSHIPE HATHAWAY than 5370 billion in assets. Ferfter levetor, reparted and jodeod Ber a committed ralue property, infoemation of ponielos for imppoper perwont] bawd on book value per thats. Wh climbed tiven $19. directly er indirectly. Covered Partici onee a duty to the WS ta 395,453in 2010, Company to atvonee it legitimate intrreci whenirver A had iscraked froen the chivf ececuetre officen and chef financial officm the "Woodiock for Caguidine", to hear him rockk. Lbbrizol Corporation Historleal Trading laformation October 2010-March 2011 ond Hothant and Lizerianl 2017. At come point daring the neat two dwy. Solool for the prowy atatement, and in a telephone contration, sugsested Labritol at a potential acquutition to Butfett, Soleol disclosed the atent and timing of his Liatrixol dildoeing that be owned shares of the ehemical com- punthaps to Berkhise Hathawx CFO Mare Hamburk: pany Buftett recalled, "In our frut tilk about Lubrimol, Thre ders lates, on 18 Manhy Beffett matied the fint Dave meationed that he owned atock in the coenpany. Afsaf of Lubiriaholi prelimisery proxy statemeat to be filed Aate of his parchave of the extent of his boudinge? B Buffer keff foe a weck-lonz trip to Aia on 19 Manch while On 25 Janaary, Solol met Hambeick for Linner in: Beakhirt and Labrirol lawyen oontimued to gather infor:Cevelant. Acoonding to documents filed with the US. mation for the prowy itatement, On 25 Mireh, Lalnixal SEC. Hambrick ptowided an overvicw of Lobrimol coo- Fled its preliminury propy with the SEC. B.ffet rnumed porase culture, plillosoplyyand operations and diacuoved frore Asia oo 26 March. of oaderials that included pobsicly availabk information made prtpantions to dinoun the matter wiab riok dhaic Bhaffett. Hambtick offered we peovile additional infor: mkaie en 30 Murh 2011 . Astitional denali of Sodnek mation and mect with Boffent if it wosld be belpfit, bet condast were dwalwed when Leblirad filed an epdoted any more inSormation tha flerkakir Ilathawy aceded Govt, a CEA chatedholdes, byodered whut he at that time. He iodicated that he woald eontect Ham: would ay when he neat sple tor Solol and which, if ans brikk If wdditional moefing would be bentical of the CFA Instinute Staduisi of Riofenienil Condoct After Sokol mpoted on the 25 Jimsary dianer with might help kim smiges the cination. Humbick. Buffiet became "intrnsed in the wiguistice Inform hion that it werald be helptal te mect with Befleet 1. Dicuas the poenlle alvene cenicquincer Sodol in Oinaha. Ncorakia. On I Febeuny 2011. Hanbeck met with EufHewy woold he te make an uffer te lay all mevere im the Lallt mater. fie 1135.00 per thase in casb. Folliming meral wewe 2. Evilame Selafo emebact mondiex Labrind, mal 2011 the Berkhie 1latheray woald aspecr ladriand for 1115 per thes in an all-cah testacten. Labris? wherter Solelis condoct complend with of rolated. Ue fhastent milline impeamicat. 1. Ithommel s ieare af mben fu MabulOnich Sherly after the anawaconec, Moffeth ios bied Hambrick, Buffett became "interested in the acquisition of Lubrizol." In late January, Sokol called Hambrick to AS SIG NME NT inform him that it would be helpful to meet with Buffett 1. Discuss the possible adverse consequences Sokol in Omaha, Nebraska. ficed following the joint announcement by BerkOn 8 February 2011, Hambrick met with Buf- shire and Lubrizol on 14 Mauch and prior to his fett. During the meeting, Buffett stated that Berk- resignation. Did his resignation reduce the risks and shire Hathaway would like to make an offer to buy all associated costs? Evaluate the cost/benefit of Sokol's of the outstanding shares of Lubrizol's common stock actions in the Lubrizol matter. for $135.00 per share in cash. Following several weeks 2. Evaluate Sokols conduct regarding Lubrizol, and of board meetings and merger negotiations, Berkshire determine which, if any, of the CFA Institute StanHathaway and Lubrizol jointly announced on 14 March dards of Professional Conduct are applicable to the 2011 that Berkshire Hathaway would acquire Lubrizol conduct. For each applicable Standand, determine for $135 per share in an all-cash transaction. Lubrizol whether Sokol's conduct complied with or violated shares closed at $134.68 that day, providing Sokol with the Standard. approximately $2.9 miltion in gains on his nearly $10 million imvestrnent. 3. Recommend a course of action for Mikkel Orut, CFA. Shortly after the announcement, Buffett's long-time broker, John Freund of Citigroup, called to congratulate his client on the Lubrizol acquisition and mentioned Citi's Dorocby C. KNly, CEA, ir a dirmor of training and aumated for involvement. Until that tins, Buffett had been unaware that inveitment bankers had brought Lubrizol to Sokol's Thir case study qualifies for 0.5CE ardit. attention as a possible acquasition. On. 15 Manch, lawyer for Berkahire and Eabrivol began gathering information