Inside Job

By Cox, Rob | Newsweek, June 11, 2012 | Go to article overview

Inside Job


Cox, Rob, Newsweek


Byline: Rob Cox

Gupta's on trial. What about Sokol?

Even when he's a no-show, Warren Buffett steals the show. And so it was that the billionaire Berkshire Hathaway chairman, even in his absence, dominated a New York courtroom where the fate of Rajat Gupta, the former McKinsey & Co. chief charged with a slew of insider-trading violations, was being determined. But it's another insider-trading situation involving Buffett that still has Wall Street riveted: the curious case of his former heir apparent, David Sokol.

Buffett was more a bystander than a participant in the Gupta affair. Though Gupta might have adhered to McKinsey's vows of discretion when he ran the place, he's accused of sharing sensitive information he obtained as a Goldman Sachs director with the now-jailed hedge-fund manager Raj Rajaratnam. After a call with Goldman's board during the 2008 financial crisis, Gupta allegedly tipped off Rajaratnam that Buffett was about to inject $5 billion of fresh capital into the Wall Street firm.

That this constituted a material event--a requirement for an insider-trading conviction--is of little doubt. Byron Trott, the former Goldman banker who engineered the deal, testified last week: "This was about as top secret as you could get." What's less clear, though, is whether Gupta had anything to gain by passing the information. In that sense, it's the reverse image of Sokol's situation.

A little more than a year ago it emerged that Sokol, Buffett's lieutenant, had personally traded shares of a company that his boss later acquired. …

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