Did David Sokol and/or Charlie Munger violate the Berkshire Hathaway ethics policies which the WSJ has now posted online? The key bit is this:

If a Director or Covered Employee is aware that Berkshire has taken or altered a position in a public company’s securities or that Berkshire is actively considering such action, trading in any securities of such public company by such Director or Covered Employee or any of his or her Family Members is expressly prohibited prior to the public disclosure by Berkshire of its actions with respect to such public company’s securities (or until the Director or Covered Employee becomes aware that Berkshire did not take and is no longer actively considering such action.)

I think the present tense here is the Sokol loophole: the language says “is actively considering” rather than “will actively consider”. If Sokol knew that Buffett was going to actively consider an investment in Lubrizol in the future, but wasn’t doing so yet because Sokol hadn’t brought him the idea yet, then he might just have stayed on the right side of the memo, which was clearly written by a lawyer.

On the other hand, it’s pretty clear that Sokol violated the spirit of the memo. If it’s wrong to trade in a stock while Buffett’s considering it, then it’s wrong to trade in that same stock in advance of Buffett’s consideration.

Munger, on the other hand, seems relatively safe. His investment in BYD was a very long-term one; it long predated any discussions at Berkshire; and it took place at arm’s length, via an investment fund — the investment was actually made by Li Lu, rather than by Munger himself.

Insofar as Sokol’s defense is “even Charlie Munger did it”, then, I don’t think it flies. Sokol was clearly trading rather than investing, and he was switching back and forth between his roles as private investor and Berkshire representative so quickly that even Citi’s bankers got confused. I’m not a securities lawyer; I have no idea whether what he did was illegal. But it certainly wasn’t behavior becoming a future CEO of Berkshire Hathaway.