Why Warren Buffett Gets to Keep His Pants On

By Cydney Posner

On Monday, Warren Buffett's Berkshire Hathaway, disclosed that it had bought a 5.5% stake in IBM, his first big technology investment, according to the NYT's Andrew Ross Sorkin in DealBook.  However, Sorkin reports, Buffett began his purchases in March. Why weren't these purchases disclosed in quarterly Form 13F filings that report holdings by big institutional managers? Instead, the Form contains a footnote indicating the omission of confidential information, which was filed separately with the SEC. According to Sorkin, Buffett "received special permission from the S.E.C. to keep secret his investment in I.B.M. — and possibly keep secret stakes in other companies that he is building positions in that we have yet to learn about. Mr. Buffett's special treatment from the S.E.C. is not new — he has long taken advantage of an obscure rule to avoid disclosing his bets to the public before he is good and ready. Mr. Buffett — and other billionaire investors… — essentially argue that the simple disclosure of an investment would cause the price to rise so much as to scuttle their strategy. The rule says that the S.E.C. ‘may prevent or delay public disclosure of form 13F information for public interest reasons or the protection of investors .' …. John Nestor, a spokesman for the S.E.C., said the agency tried ‘to balance the benefits of transparency of how large managers invest with the need to temporarily protect the legitimate confidentiality interests of managers in limited circumstances.'"

The SEC reportedly receives about 60 requests a quarter to keep investments confidential. The article notes that the Office of the Inspector General has criticized the SEC's treatment of confidential treatment requests by companies and investors: "'Over 90 percent of confidential treatment requests submitted were not subject to a thorough review and examination for compliance with all aspects of the confidential treatment request rules…. [T]here is an increased risk that material information to investors may not be disclosed.'"

Mr. Buffett told Sorkin that "he did not believe that public investors should always be allowed to piggyback on investment ideas made by professional investors, especially before they are finished buying." However, Sorkin contends that this is one more event that leads the public to believe "that the playing field on Wall Street is tilted toward the wealthy….One of the reasons for the rules is to prevent an investor from mounting a covert takeover effort; another is so that average investors know where big wheels are moving their money. "

According to Sorkin, in 1997, "Larry N. Feinberg, the founder of Oracle Partners, memorably told BusinessWeek: ‘I do not think confidential filings are fair. If I'm going to pull down my pants in public I want everyone to pull down their pants, too.' "

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