Case Study Buying Lubrizol

Question 1
Discuss the possible adverse consequences Sokol faced following
the joint announcement by Berkshire and Lubrizol on 14 March
and prior to his resignation. Did his resignation reduce the risks
and associated costs? Evaluate the cost/benefit of Sokols actions
in the Lubrizol matter.

The possible adverse consequences Sokol faced following the joint

announcement by Berkshire and Lubrizol on 14 March and prior to his
resignation include:

Increased publicity and pressure on Sokol and Berkshire to explain

their actions
Regulatory organisations investigating Sokol and Berkshire
Further reputation loss for Berkshire

His resignation reduced the risks and associated costs.

Question 2
Evaluation Sokols conduct regarding Lubrizol, and determine
which, if any, of the CFA Institute Standards of Professional
Conduct are applicable to the conduct. For each applicable
Standard, determine whether Sokols conduct complied with or
violated the Standard.

1. Professionalism Sokols conduct violated this Standard

a. Knowledge of the law
b. Independence and Objectivity violated
c. Misrepresentation violated omission of facts
d. Misconduct violated
2. Integrity of Capital Markets
3. Duties to Clients Sokols conduct violated this Standard (including
loyalty to clients)
a. Loyalty, Prudance and Care violated loyalty carried out
investment actions for the sole benefit of himself
b. Fair Dealing
c. Suitability
d. Performance Presentation
e. Preservation of Confidentiality
4. Duties to Employers
5. Investment Analysis, Recommendation and Actions Sokols
conduct violated this Standard (including diligence and reasonable
bias)
6. Conflicts of Interest Sokols conduct violated this Standard
(including disclosure of conflicts)
 7. Responsibilities as a CFA Institute Member of CFA Candidate
Sokols conduct violated this Standard

Question 3
Recommend a course of action for Mikkel Orut, CFA.

A course of action for Mikkel Orut would be to admit to the wrongdoings of

Sokol and restore trust by:

Embracing transparency
o Clearly articulate investment missteps
o Disclose conflicts of interest and quickly address problems
o Fully disclose fees and impact
Demonstrate integrity
o Resolve conflict of interest in favour of clients
o Structure fees to align with clients risk/return objectives
Improve communication
o Communicate with clients early and often throughout the
investment process
o Fairly represent the investments made, risk, expenses
o Avoid ambiguity in communications