The Ethical Investigator

A superb column over the weekend by the personal investing columnist in the Wall Street Journal, Jason Zweig, struck a chord or two with us because of what it said about human knowledge and the occasional lack thereof.

Zweig was advising investors not to look to J.P.Morgan Chase’s CEO Jamie Dimon for guidance about sound investing practices, but the late Nobel physics laureate Richard Feynman: "You must not fool yourself—and you are the easiest person to fool."

For investors, says Zweig, “the bigger the commitment, the more certain they become that they must have been right to make it—and the harder it becomes to let go.” It’s all the more difficult to let go of ideas blessed by experts. Risk valuation used by banks has blown plenty of banks up, but bankers continue put their faith in it. Investors in turn put their faith in banks using this flawed technology.

Zweig advises that if a great investment such as J.P. Morgan Chase (prior to Friday) has paid handsomely, you should seek opinions of people who think you are wrong just to make sure you aren’t. If you love a stock, analyze the arguments of short sellers who hate it.

How does this translate into the world of fact finding? Take the brilliant candidate up for an executive posting: he’s never had a single black mark on his resume, every one of his references loves him, and he’s had great press for the past 10 years. He’s the J.P. Morgan of executive candidates, and he’s the perfect person to have examined by a fact investigator who will look for the following:

• Litigation that hasn’t made the news;
• Ownership of secret companies previously unknown, which could reveal business activity and litigation that also flew under the radar beforehand;
• People this person worked with but were left off his resume because they dislike or distrust him.

Or take the requirement for an asset search either to enforce a judgment or to track down money held by a spouse in the midst of a divorce proceeding. Would we need to do the asset search in Switzerland or the Caribbean, or even across state lines? Clients often say no, but really have no way of knowing where the assets may be.

The only way to find out is to start with all the information we can get from the client (all company names, phone numbers personal and commercial, addresses just for starters). We then take an open-minded approach and follow the leads.

The thing that often throws even experienced investigators off the trail is finding something they don’t expect to see and then figuring they must be wrong. “Our guy has never left New Jersey, so this can’t be his huge house in Pennsylvania that’s owned by a Cayman Islands company” is about the worst thing an investigator could conclude.

Zweig’s kicker is worth remembering for investors and investigators alike: “The smarter you are, the more easily you can fool yourself.”

Context matters. We know this instinctively, and yet somehow we forget.  We still tend to assume that facts live in their own separate bubbles. So when we research and analyze, we warily keep our findings in separate categories—information on person A separate from information on person B, which are both separate from facts uncovered about company C.  We go to great lengths to avoid any cross-contamination because that may be messy or unwieldy and keeping things tidy is so satisfying. 

But investigations are lots of things, and tidy is not one of them.  Investigations are filled with loads of information which could be put into more than one category or, maddeningly, into no category at all.  Investigators have to patiently wade through all that data, perhaps indulge in categorizing at first to help keep track of data, but then get rid of the categories and start to put things together.  Only then can the dots be connected.  Finally, a full picture emerges.    

But how to connect the dots?  How to avoid being overwhelmed when you feel like you’re drowning in data?  We’ve sang the praises of chronologies as a good way to see the big picture. But this is especially true when a time line is built using facts from all sorts of different categories.  Exploding those categories, taking those facts and putting them into a new context, may be the best way to make sense of information that might otherwise appear irrelevant or unrelated. 

For example, we recently investigated an executive who a few years ago gave quit claim to his wife of their family home in Pennsylvania.  At first this transaction didn’t seem to fit into the narrative we were uncovering about his personal life.  So we made a note of it and when it happened, figuring for the time being that it was nothing more than a savvy financial decision done for personal tax purposes. 

But this turned out not to be the case once we analyzed what was going on around the same time at one of the companies the executive headed.  Within weeks of the quit claim transaction, one of the companies was sued for several million dollars by another corporation.  The plaintiff corporation alleged that it had been defrauded and accused the defendants of negligence.  Although the executive was not named in the suit, he was implicated because he directly oversaw the transactions at the center of the plaintiff company’s claims. 

Suddenly that quit claim, which initially seemed to be separate and apart from the executive’s professional life, made sense in the context of what was going on at his corporation.  Given the timing, the transfer of this very expensive home to his wife suggested the executive was attempting to shed his assets in anticipation of being held personally liable in the lawsuit. 

Then throw in the fact that the case was settled a mere 20 days after the suit was filed.  Although the terms of the settlement were kept confidential, the timing suggests that the defendant corporation was happy to make the concessions necessary to settle the litigation rather than risk having the case proceed.  While we don't know for sure if this is the case, initial analyses suggest that these three facts combined—the quit claim, the lawsuit, and the settlement—are as close to an admission of liability as a savvy, well-represented executive is likely to make.  But the full picture emerged only after we were willing to set aside the categories we’d created and place all the facts into new and different contexts.  

We have written extensively about the importance of good interview skills, here and here.  Professionals whose work depends on their ability to interview well—investigators, journalists, lawyers, doctors—know that it’s an art, honed by a keen understanding of the mindset of people in turmoil and a lot of trial and error about what does and does not work.  It’s about knowing how to listen, knowing when to respond and when to stay silent, knowing when it’s the right time to ask a question and when it’s best to wait. 

 And it’s also about having enough humility to recognize that you are beholden to the client to help set you on the right track.  As a recent article by attorneys Olivier Taillieu and Mark Wolf in the ABA Journal “Litigation” points out, a law client’s most valuable assets are their knowledge and experience.  The same holds true for corporate investigation clients.  A successful investigation starts with a successful client interview. 

Interviews need to be approached the same way a database search is approached—with an open mind and a lot of patience.  At the start of an investigation, clients know more about their finances than you do. They have greater insight about who in their company or among their business or social acquaintances may be able to provide useful information.  They know who they’ve sued or been sued by in the past, and can provide information about the parties involved in these past cases and claims.  They can help jumpstart an investigation by granting leave to speak with other investigators or attorneys they’ve worked with whom might have information relevant to the current situation.  They may know other people who have sued their current adversary and may have insight that could prove crucial to researching an issue.  As Taillieu and Wolf candidly point out, attorneys are often “eager to help put the screws to their former adversaries. Never underestimate the power of grudges.”

Of course, this doesn’t mean that an investigator is just passively listening while a client tells their story.  It’s crucial to be engaged and ready to ask the right questions at the right time.  Clients have a fountain of information but that doesn’t mean they know what to tell you.  Even the most sophisticated client may not know what it is you need to know to do your job.  A good investigator patiently asks questions to help access that information. 

And what are the right questions?  Well, they may be the most basic ones, the ones that seem obvious if we’re not making any assumptions or guesses about the case.  It’s always a challenge to shut off that voice in our head that starts taking shortcuts and generating assumptions.  But you know what they say about assumptions, right?  Well, it’s true.  So give yourself permission to ask even the most obvious questions to help ensure that you have all the information you need.  It might be helpful to have a checklist of all the basic information that you’ve found helpful to have in previous cases to help steer client on the right path.  See the list we have for divorce clients here. 

And of course, make sure to keep the lines of communication with the client open.  Some clients may think that after the initial interview, they get to just sit back and wait for you to work your magic.  They may need to be reminded that investigations are often collaborative efforts, and their job is to keep providing you with information, be it something they forgot to tell you the first time around or something new, that comes up afterwards.  They need to know that you won’t be bothered or annoyed if two hours, two days or two weeks from that initial appointment they call or email with just “One more thing….” 

A report on National Public Radio written up here outlines the problem: legitimate businesses are increasingly subject to identity theft. Businesses find imposters are misusing their credit ratings, while there’s serious risk that people are using exterminators, contractors and other businesses being run by those same imposters.

While businesses guarding against ID theft are in the same position as people afraid of having their credit ratings ruined, there is an extra consumer angle to business ID theft: How can you be sure you’re dealing with the company you think you are?

a) Check the Secretary of State on line for the company you’re dealing with. We don’t mean Hillary Clinton. Companies in the U.S. are formed at the state level, and the government department that regulates corporate formation is usually headed up by the the Secretary of State.

 At the Secretary of State, check the following:

• Is the corporation in good standing? If not, back off. Even if it is, was it recently revived after a long period of inactivity? If so, beware and look elsewhere because scammers sometimes slip into the shoes of long-dormant companies in order to give themselves a cloak of legitimacy.
• Who is the owner of the corporation? Ask on the phone when you’re making your deal, and then check to see if the records match. If not, ask why not.
• Is the address for the company one where you would expect to see this kind of business? Does it operate out of a vacant lot or a gas station? Google the address and see what pops up. If your business doesn’t, you may have an ID theft.

b) Google the telephone number you’re calling. Even businesses without a website tend to be listed by other services. If you’re calling someone’s throwaway cell phone, that number probably won’t come up on the web as being associated with the business.

c) If the business you’re dealing with is subject to a professional or occupational license, you’ll usually be able to look that up too.

How would all of this work with the business that was impersonated in the NPR story, AAA Termite and Pest Control in Memphis, Tennessee?

There is only one such business listed on the Tennessee government site here. You find that it’s based at an address on Macon Road and that it was established in 1975. Except for a four-year hiatus in the 1980s, it has been in business ever since. Someone from the Burnett family at the registered address is the company’s registered agent.

What about licenses? While license checks are possible on line in some states, rules vary by state and even within states. Sometimes licenses are handed out at the municipal level. You can look up nurses and chiropractors in Tennessee, but not licensed pesticide dispensers. To check on AAA Termite’s license status, you have to use a telephone.

That may seem labor intensive, but if you’re not hiring new contractors every day, taking a few minutes out to make sure you’re dealing with the right person can save you a world of trouble.

It’s always nice to be able to know who has loaned people money. It helps in asset searches, of course, but we also like to call bankers in after-fraud investigations. Now getting to the identity of those lenders is about to get harder.

Secured creditors have to put their customers on the public record. Such lending on real estate is called a mortgage, and on other kinds of property a “UCC-9” security agreement (known long ago as a chattel mortgage).

Who’s loaned money to whom is useful information if you’re a lender’s competitor, but it’s also great information in an asset search. You often need to contact other creditors to swap information, or else in litigation to figure out whether the person you are investigating may have perpetrated a fraud. What they told their lenders can be critically important.

Lenders have in the past tried to file under trade names (also known as DBA’s, for “doing business as,”) but those are also a matter of public record if not always findable on line. You can make up a name on a financing statement, but that gets awkward when it’s time to go to court and enforce a security interest.

The Company Corporation in Delaware thinks it has come up with a good solution that it’s recently started marketing: under UCC Article 9, lenders can submit the name of an authorized representative and have them listed in place of the lender, just the way people forming Delaware corporations can hide their identity by hiring an incorporator and registered agent. CSC offers that kind of service for Delaware corporations, and now says it’s the first to go into cloaking the identities of UCC creditors.

Now, instead of looking up who loaned money to a debtor, fact finders may have to determine who the representative of the lender is and then send in questions via that representative to uncover the identity of the lender. Who will answer? It could be the lender, but the lender won’t be under any obligation to respond. Or, depending on the agreement between the representative and the lender, you could be forced to deal with an intermediary representative instead of going right to the bank or finance company in question.

Just one more reason that data dumps by computer – never enough in conducting any kind of thorough investigation – fall short of the mark. Now even a search for a lender that used to be findable by computer or by an entry-level clerk may need the hand of someone experienced enough to be able to ask the right questions in the right way just to get the right person to come to the phone. 

Anita Collins, an elderly woman working as an accounts payable clerk for the New York Archdiocese, was recently arrested for embezzling funds from the church.  That’s bad news for the archdiocese.  But the real black eye for the church is that the entire experience could have easily been prevented.  Had the church run a simple criminal background check on Collins, they would have seen that she had a felony conviction for stealing funds from her previous job, and had pled guilty to a misdemeanor when charged with criminal forgery and grand larceny.  In fact, she was still on probation for the felony conviction when she was hired by the archdiocese.  Given her criminal past, putting her in a position where she had direct access to church funds would fall under the category of poor management decisions. 

What this situation teaches us is not just that the archdiocese should have run a criminal background check on the woman—that’s obvious.  The real lesson here is the importance of timing.  Collins was hired shortly before the archdiocese instituted a policy requiring background checks for all new hires.  The church had chosen to make background checks retroactive for existing employees who worked with minors, but they made no such allowance for employees with access to church funds.  As the archdiocese spokesman explained, “It was just a happenstance of timing that [Collins] was hired just almost immediately before the program was instituted.” 

Clearly, the church should have made background checks retroactive for a broader pool of existing employees.  A reasonably prudent policy would have required a background check for new and existing employees entrusted with financial responsibilities.  In other businesses, background checks may also be in order for employees with access to trade secrets, or with access to other employees’ confidential personal or medical information. 

Now, you’re thinking, I have a background policy in place and all new employees that have these posts are rigorously scrutinized.  Well, good. But does that same level of scrutiny also apply to internal promotions whose new posts now give them access to funds or sensitive information?  Sure, a background check on an internal candidate may seem unnecessary.  After all, she’s been working for you for a while, and you believe that you don’t have to confirm that she is trustworthy, reliable, a good team player—clearly you think so or else you wouldn’t be promoting her.  Or maybe it feels invasive to conduct a criminal background check at this point.  Perhaps you assume that you know her so well that suspecting that she’s been lying or withholding information all this time is a betrayal of sorts. 

 But due diligence requires that we take a step back and look at a situation anew.  If this person had been an external candidate for this position, she would have been subject to a much more rigorous vetting process.  An internal promotion is not a time to get lazy, or to assume that because there have been no red flags up to now everything will remain fine in the future.  Or to be afraid of what you’ll find out.  It’s so easy for companies to give themselves an out when it comes to due diligence.  Don’t do it.  Make it company policy that everyone, be they an internal promotion or external hire, who has access to funds, trade secrets, confidential information, and/or minors is subject to thorough due diligence, including a criminal background search.  That’s the only way you can have peace of mind that you've done all you can to protect your organization’s best interests.  

You have an opening in your company.  You get a slew of resumes for the position, you interview a number of candidates, and then you finally narrow it down to two people: One has experience that’s right on the mark, but during the interview you had glimpses of an attitude that might not mesh with your corporate culture.  The other person is lacking a number of important skills, but it seems that she makes up for her shortcomings with an energy and attitude you admire.  She seems like a real go-getter who will be a good fit among your staff.  So what do you do?

We’ve seen this debate played out in the blogosphere repeatedly (here’s one example, and another), and usually folks tout character over skills.  The reasoning?  Skills can be taught, but character cannot.  But if you’re the person doing the hiring, how do you make sure that your impression that someone has a good character is right?  Or if you’re an attorney who’s looking for a reliable witness, how do you make sure you pick one whose credibility won’t be ruined by proof of a less than upstanding character?

Is this as simple as confirming that the candidate’s resume is accurate?  Determining that someone must have good character because they didn’t lie on their resume is setting the bar pretty darn low.  So do you just resort to Googling the candidate or witness?  Checking their Facebook page or Twitter feed?  We’ve pointed out more than once that assuming everything you need to know about someone can be found on the Internet is just not true.  You don’t get a full picture of someone just because you saw their listing on LinkedIn or scrolled through their pictures on Facebook—expect perhaps that they have yet to master the social networking site’s privacy settings. 

So is this instead an “I know it when I see it” sort of assessment—where you base your decision primarily on your “gut,” your “instinct,” or some sort of “hunch” about the candidate’s character?  Maybe you’re a great judge of character with a wonderful track record who can trust your instinct without reservation.  But for most people, that’s rarely the case, especially those who are new to hiring or who don’t have a lot of experience selecting witnesses for a case. 

The truth of the matter is that being a good judge of character is sort of like being funny: everyone thinks they are but we all know that’s not always true.  I don’t mean to suggest that instinct isn’t valuable—sometimes it’s all we’ve got and more often than not it’s worth heeding a “bad feeling” about someone.  But we’re talking about pretty high stakes here, and it would be good to base an important decision on more than a hunch. 

This is where a good investigator is invaluable.  Every worthwhile investigator will look beyond the Internet and do various in-depth database searches.  But those who really know what they’re doing know that that’s not enough.  They know that ultimately they have to get on the phone and start interviewing people.  They will talk to those old employers, track down ex-colleagues, and get the skinny from friends, classmates and co-workers.  Sure this might generate some gossip, and some of it may or may not be true.  But combined with smart and thorough database searches, this approach will provide a much clearer picture of your candidate’s character, helping you make a genuinely informed decision.  

An enraging story by the Associated Press spells it out: computers used by background checkers mix up two people with the same name. Blameless woman gets tagged with a criminal record that isn’t hers, can’t get work and ends up homeless.

We’ve written about the danger in relying on the “intelligence” of computers here, and the limitations of Google here. The message in these as well as the AP story about the ruined lives of background checks gone wrong are the same: there is no substitute for having an intelligent person conduct your research.

We saw such a problem earlier this year: a client called and said he wanted to hire (let’s call him) Robert M. Johnson for a high-paying job. Robert M. Johnson is an accomplished professional with a great resume and wonderful references. How then to explain the criminal record for fraud turned up by one of the databases? Robert M. Johnson the candidate said, “I’ve never been convicted of any crime. You’ve got the wrong person.”

Turned out he was right and the database was wrong. How could we tell?

1. We looked up the criminal case in question. While the AP story is correct that more and more criminal records are on line, the cases themselves – the critical documents – often are not and in any case need careful reading. We looked at the sentencing report in this case and found that the criminal Robert M. Johnson was sentenced to serve his time in a particular southern state to be close to “home and family.”

2. We then found that the Robert M. Johnson up for the job had no ties whatsoever to this southern state. His parents didn’t live there, he had never lived there, his Social Security number was not issued there, and he was working in Connecticut while the criminal Robert Johnson was committing his crimes down south.

This seems like simple work, but the databases were incapable of making the mundane connections that distinguished two very different men with the same common name. Why would this be?

To start with, not all databases come up with the same information. One may know where a person has worked for the last ten years, while another will have no information about employment. Still, the employment-light database will do a great job associating a person with companies he may own or on whose boards he serves. Both kinds of information are vital, but no machine can yet put them together to draw a complete picture.

Complete pictures come when the human mind gets involved, and even then, databases can only take you so far. We’ve written here about that too, and how interviewing is sometimes the only way to get the information you’re looking for.

But interviews or not, automated searching is like letting a robot build a car and then having another robot inspect the thing. The robots are certainly useful and lower the cost of the vehicle, but would you drive that car before a person had looked it over? 

It happens all the time.  A divorce lawyer calls us and says his client is thinking of suing her husband for divorce, but knows very little about the family’s finances. What are the sources of income? Where is the money invested? Does the husband have anything hidden in companies she doesn’t know about?

After years of telling clients to tell us “everything you know about your husband’s money, investments and habits that could help us to find assets,” we came up (at the suggestion of a client) with a better idea: a checklist to help clients under stress ask themselves all the right questions before we begin an asset search.

Here is that list. It’s been very helpful not only in a couple of recent divorce cases, but also in other kinds of asset searches.

The questions are to be asked about the person being searched, not the client being interviewed.

1)      What are their full names? Have they ever used any other names? Single names? Other married names?  Variations of their current names? (E.g. using their middle name or initials instead of their first, etc.?)

2)      When were they born?

3)      Where were they born?

4)      Where do they live? What are the addresses? Do they own property there? Keep in mind this includes real estate, as well as cars, boats, planes, etc. And real estate is more than just homes: It also includes land and commercial buildings.

5)      What phone numbers are associated with them? Home? Office? Mobiles?  

6)      Where do they vacation? Do they own property there? What are the addresses? What are the phone numbers for those properties?

7)      Where do they like to travel? How frequently do they go there? Might they own property there?

8)      Where do they bank?

9)      Do they have investments? Stock? Bonds? Property? Other businesses?

10)   Do they have any paid insurance policies with cash value?

11)    Do they have any annuities that you know of?

12)    Where do they currently work? What is the address there? What is their position?

13)    Do they have any ownership interest where they work?

14)    Do they or have they had any partners? What are their full names? Where do they live? What are their addresses?

15)    Have they had any previous jobs? What was the address there? What was their position?

16)    Have they had any ownership interest where they previously worked?

17)    Do they currently own any companies? What are their names? What do they do? What are their addresses? What phone numbers are associated with them?

18)    Have they previously owned any companies?

19)    If they own companies or have owned companies in the past, what were they named? Are there any naming conventions they’ve relied on? For example, initials of names? City names? Variations on the same name? (St. Mark Co., St. Mark Associates, St. Mark Partnerships, etc.). Can you guess what they may name a new company?

20)    What did the companies do? What are their addresses? What phone numbers are associated with them?

Police have arrested another suspected rogue trader at a big investment bank, a man named Kweku Adoboli who is alleged to have lost $2 billion for UBS in unauthorized deals.

A story about Adoboli in the Wall Street Journal describes him a “well educated” and “polite,” which must fall into the category of Dog Bites Man.

After all, has anyone who looked and acted like a Hell’s Angel ever held a job for very long at a big bank?

If Adoboli is guilty, his name will go alongside lots of white-collar criminals who seemed perfectly nice, smooth and well turned out, with all the right degrees after their names.

UBS may have done proper due diligence on Adoboli before hiring him and may well have turned up no red flags.

But the lesson here for anyone doing due diligence is that a nice suit and a good degree mean a little something, but not enough on which to make a decision about a person’s character or ability. 

Law schools have known for years that they turn out lawyers without training on how to gather facts. What’s changed recently is that law schools are starting to think this isn’t such a good idea.

My colleague Peter Tillers, with whom I teach a course in fact investigation, has rounded up some of the most compelling arguments in favor of more hands-on teaching of how to gather the facts lawyers need.

Facts matter, because before lawyers can ever get in front of a judge to argue the finer points of law as they rehearsed in moot court competitions, they need facts to help their case. Even without a courtroom in the picture, better facts make for better settlements.

How in the world can you tell how good a person’s fact-finding skills are? It’s always helpful to know before a court-imposed deadline looms, when the facts you need could remain stubbornly elusive.

Try the following test/exercise on new associates or even yourself:

1. Google yourself (or relatives if you don’t own property) and try to find public-records evidence of where you or your relatives live. What was paid for the house and what was the mortgage? Chances are you won’t be able to find much that’s useful, a good lesson in the limitations of Google searching. We’ve written about that here. Hint: do you really think a court would accept a price on Zillow.com as evidence of anything?

2. Now try to find the deed and mortgage another way, with public-records sites at county level. Start here to see where your county’s website is. Still couldn’t find it on line? Perhaps that’s because the vast majority of records in the U.S.  are still in hard copy only. You have to go to a county records office and get them (or hire someone to do it for you).

3. Now pick a store near your office and try to find out who owns the company that runs the store and owns the building it’s in. You will probably need a combination of property records and filings from the Secretary of State.

Things get trickier when you get into the area of finding assets, including figuring out whether your person owns shares in an LLC or partnership he doesn’t want you know about. If you can’t reasonably expect someone to get a simple deed or incorporation record, the advanced stuff will most likely prove completely elusive.

There was a letter in this week's edition of Barron's that said, "Lawyers look backward to precedent. Innovators assiduously look forward and avoid precedent. The two mindsets are antithetical."

The letter is about why lawyers at the SEC can't keep up with the advanced math and technology that hatches new ways to beat out ordinary retail investors, as with high-frequency trading.

It also got me thinking about the two mindsets people look for in an investigator. If precedent told us what we needed to know about what someone might do next, we could simply research the past and change the dates: he always settles four months after he files suit, he always parks his money in side companies named after the street he lives on, and so forth.

In fact, investigators have to look both backward and forward: backward to find people with whom to discuss a subject’s past actions as well as mindset, and forward to try to imagine what a subject may be doing given past patterns and current facts. Some of those current facts are known, some need to be guessed at within constraints of limited time and budgets.

My colleague at Cardozo Law School Peter Tillers has written extensively about the mindset of a fact investigator and is organizing a workshop this week on evidence and inference.

His view is that what contributes to making fact investigation especially daunting to some is justifiable fear of failure. That fear may be related to lack of innovation, he says. “Explorers don't know for sure what's going to happen. It takes genuine courage to investigate.”

Is Warren Buffett Telling the Truth?

I have been trying to figure out what is so disturbing about the exit of David Sokol, Warren Buffett’s former heir-apparent, who submitted a letter of resignation last week that gave vague reasons about wanting to create “enduring equity value” outside of Berkshire.

A collection of respected law professors included here and summarized here at the Delaware Corporate and Commercial Litigation Blog appears to conclude that based on the facts as we know them, Sokol did not engage in insider trading when he bought shares in an industrial lubricants company called Lubrizol. Nine or ten days after buying them, Sokol then suggested that Buffett’s Berkshire Hathaway buy out the company. Sokol’s potential profit on the deal is almost $3 million.

Nobody is suggesting that Sokol knew Buffett would go for buying out Lubrizol, so he was not front-running. Berkshire shareholders seem not to be paying any more than they would have paid if they had tried to buy the company when Sokol did. Still, Sokol just mentioned (but apparently did not write) to Buffett that he owned Lubrizol, and Buffett said he never investigated how long Sokol had owned the shares or how many Sokol held.

Buffett only learned of the extent of the Sokol investment in Lubrizol from a senior vice president at Berkshire instead of from Sokol himself, according to Andrew Ross Sorkin at the New York Times’ Dealbook.

Buffett tells us that Sokol surprised him with a resignation letter just as all of this came to light. That letter that sounded like the canned “spend more time with my family” or “pursue other opportunities” we’ve grown used to hearing -- and often doubting.

Smart Money’s James B. Stewart came closest to nailing the issue: the Buffet/Sokol narrative just doesn’t seem credible.

It would have been so much better if Buffett had said something like: “Dave is a brilliant investor and Berkshire is a more valuable company thanks to his efforts, but his judgment in the timing of his Lubrizol purchase was flawed even if no laws were broken. I did not have to ask for his resignation and did not try to talk him out of leaving.”

Buffett is on record as saying he would much rather have employees lose his company money than even “a shred” of reputation. What remains today of Berkshire’s reputation? A whole lot, but certainly a bit less than before the Sokol events came to light.

The Buffett Sokol episode is typical in one way of a lot of investigations into complicated, powerful people: in the end, we report on a person who has broken no laws and seems legally above reproach. The problem instead is one of judgment. Would you want someone with Sokol’s brilliance scouting out investment opportunities for you? Sure. Would you want him to run your entire company? Perhaps not.

As for Warren Buffett, he’s a hero to many because he of all people can afford to speak his mind. At 80 he’s justly celebrated as a genius and a great philanthropist, and is one of the world’s richest men. But if he’s reduced to careful press releases accepting turgid resignation letters, Berkshire Hathaway looks like just another company a with a good long-term track record for investors.

Berkshire Hathaway, meet General Electric.