Berkshire Trading Kept Secret Sec Grants Buffet An Exemption

Billionaire investor Warren Buffett’s Berkshire Hathaway has for years used a little known securities law to trade stocks without telling the public, unlike most institutional investors.

McDonald’s Co. and American Express Co. are among companies whose common stock Berkshire Hathaway bought without disclosing its actions, according to filings since made public. Buffett is now among the largest shareholders of both companies.

When Berkshire filed the confidential 13F form with the Securities and Exchange Commission for the fourth quarter of 1994, it showed a purchase of 4.91 million shares of McDonald’s stock in that quarter.

By nine months later, Buffett was reporting his holdings had expanded to 9.33 million shares. When that figure was first released to the public on Dec. 5, 1996, McDonald’s shares jumped almost 4 percent to $48.12-1/2 from $46.37-1/2.

Berkshire has asked the Securities and Exchange Commission to be allowed to keep certain investment moves secret for a year.

“Berkshire believes that good investment ideas are rare, valuable and subject to appropriation (if not protected) just as are good product or business acquisition ideas,” wrote Marc Hamburg, a Berkshire vice president in a 1993 letter to the SEC asking that certain investments be kept confidential. It was obtained by Bloomberg News under the Freedom of Information Act. Institutional money managers must file a form 13-F at the end of each fiscal quarter if the combined market value of the stock they hold in public companies exceeds $100 million. The form lists the stocks held in their investment portfolios on the last day of each quarter.

Each quarter about 1,800 13-F’s are filed, and about 55 requests for confidential filings are received, said Heidi Stam, associate director for investment management at the SEC. Most requests are granted, she said.

In Berkshire’s letter to the SEC, Hamburg wrote his company was concerned about the damage that might ensue if the information became public.

“Berkshire believes that when other major investors begin to follow its lead, the resulting trading may influence market prices,” wrote Hamburg. “Substantial commercial and competitive harm can thus result to Berkshire.”

13F’s have been released to the public since the mid-1970s. Investment firms can ask for “confidential treatment” by claiming to the SEC that their use of a proprietary trading strategy, or a risk arbitrage-related strategy, would be compromised and they might suffer financial harm if an investor could use a SEC filing to copy their trading formula.

“Confidential treatment’ can be sought for all or part of a portfolio. A firm seeking such treatment would file a 13F and “confidential” 13F every quarter. One gets released to the public. The other is stamped 13FCON and goes on file for 15 months, before it is made public.

Berkshire Hathaway used the exemption it won to buy stakes in such companies as Merrill Lynch & Co. Inc., Dean Witter Discover Co., PNC Bank Corp., and Suntrusts Banks Inc.

For years, Berkshire has been filing two sets of quarterly reports with the SEC: one public and one confidential. The confidential report doesn’t become public for at least a year.

Confusion this week over its Wells Fargo holdings erupted when Berkshire unexpectedly shifted its disclosure about the bank from the public report to the private one.