The Snowball_ Warren Buffett and the Business of Life - Alice Schroeder [242]
But despite his enthusiasm for the market so far in 1974, he had invested at a trickle, and mostly moved money around into Studebaker-Worthington, Handy & Harman, Harte-Hanks Newspapers, and Multimedia, Inc., and added to his Coldwell Banker position. He bumped up a few of his other shareholdings by ten or twenty percent. He had also bought 100,000 shares of Blue Chip from Rick Guerin. “He sold me at five bucks because he was getting squeezed,” Buffett says. “That was a brutal period.”
The “harem” comment had a double meaning: While it was, indeed, the time to start investing, Buffett, for the most part, could look but not touch. One of National Indemnity’s business partners, an aviation broker, had run amok, selling money-losing aviation-insurance policies. The company had tried to stop the agent by revoking its authority but for several months was unable to shut it down.18 The accounting records were a shambles and the losses were unclear. National Indemnity had no idea how high the bill for the “Omni affair” would run, but worst-case estimates ran as high as tens of millions of dollars. The hope was that they were much less, because National Indemnity did not have tens of millions. Buffett was sweating.19
Within a couple of months—by early 1975—his problems compounded monumentally. Chuck Rickershauser, a partner from Munger’s law firm, now renamed Munger, Tolles & Rickershauser, called him and Munger to say that the Securities and Exchange Commission was considering pressing charges against them for violating securities laws. What had seemed like a brewing but manageable problem had now exploded into a full-scale emergency.
Rickershauser had first started doing legal work for Buffett and Munger during the See’s transaction. More recently he had been fighting a rear-guard action, ever since an SEC staff lawyer had called him and said he had some questions. Under the assumption that the matter was routine, Rickershauser had directed the man to Verne McKenzie, Berkshire’s controller.
When McKenzie’s phone rang in Nebraska, he picked it up to find the head of the SEC’s Enforcement Division, Stanley Sporkin, the much-feared “tough cop” of the business world, on the other end of the line. Sporkin looked as though he spent his evenings hunched droopy-eyed under a desk lamp, personally drafting the charges against large corporations that for the first time in American history had frightened a remarkable number of them into settling with the SEC without ever setting foot in court.20 On the phone, he interrogated McKenzie on a wide range of subjects, from Wesco to Blue Chip to Berkshire and beyond. His tone was not friendly, but this, McKenzie had assumed, was simply his modus operandi. On the other hand, McKenzie did get the impression that Sporkin thought if you were rich, you must have done something wrong.21
When Rickershauser heard that Sporkin, rather than a staff lawyer, had personally called and grilled McKenzie at length, he nearly had a heart attack. Sporkin’s batting average had made his jowly profile among the most recognizable in American business. In a practical sense he had more power than his boss, the chairman of the SEC.
What seemed to have drawn the SEC’s attention was a project of nearly two years in which Buffett and Munger were trying to delicately untangle the many strands of spaghetti that connected the several companies they owned. Their first step had been to try to merge Diversified, the least essential piece, into Berkshire Hathaway. By 1973, Diversified had become little more than a vehicle for buying Berkshire and Blue Chip stock. But the Securities and Exchange Commission—whose approval was required—had delayed the Diversified deal. Munger had told Buffett that this was not anything serious. He directed Rickershauser to “invite anyone in the SEC” who had questions to call him directly, “if this will expedite his work and clearance of our papers.”22
Instead,