U.S. judges' investments in Buffett's Berkshire a conflicts 'nightmare' - letter

Cathy Baron Tamraz, president and chief executive officer of Business WireBerkshire Hathaway Chairman Warren Buffett tours the floor of the New York Stock Exchange
REUTERS/Brendan McDermid
  • Judge Erickson cites issues with judges holding Berkshire stock
  • Often judges do not know a party is a Berkshire subsidiary

(Reuters) - As the federal judiciary braces for a new law toughening up financial disclosure rules to take effect, a prominent judge is sounding the alarm about one stock in particular that is causing a conflict-of-interest "nightmare" for too many judges: Berkshire Hathaway.

U.S. Circuit Judge Ralph Erickson in a letter last week to the heads of two key judiciary rules committees said many judges invested in Berkshire do not know until too late when a company appearing before them is owned by the Warren Buffet-led conglomerate.

Erickson, who sits on the St. Louis-based 8th U.S. Circuit Court of Appeals, wrote that several judges had brought to his attention a recurring problem with Berkshire that created a "thorny" issue broader than just that one large company.

Those judges, he said, have accumulated "substantial" capital gains investing in Berkshire, whose stock price has jumped 60% over the last five years, exposing them to capital gains taxes if they sold the stock.

As a result, Erickson said the judges have avoided doing so, yet have struggled to ensure they are not presiding over cases involving the assorted companies Berkshire owns, creating a "conflict nightmare."

He said that's because disclosure statements that companies are required to file in court identifying their parent organizations do not cover the parent's ultimate owner.

For example, Orange Julius of America is owned by International Dairy Queen, a Berkshire subsidiary. Yet Erickson said Orange Julius currently only must disclose IDQ as its parent, not Berkshire.

Erickson suggested the U.S. Judicial Conference's Codes of Conduct Committee make it easier for judges to obtain certificates that would allow them to defer capital gains taxes if they preemptively divest themselves of holdings like Berkshire.

Erickson, whose recent disclosure reports do not reflect any Berkshire investments, also urged the Advisory Committee on Civil Rules to require disclosures about litigants' ultimate parent companies.

The Administrative Office of the U.S. Courts said the Civil Rules Committee will review Erickson's proposal over the summer. It next meets Oct. 12.

Berkshire did not respond to requests for comment.

Erickson's letter came two months after President Joe Biden on May 13 signed into law the Courthouse Ethics and Transparency Act, which would require federal judges to more promptly and publicly disclose their stock trades.

The legislation was prompted by a Wall Street Journal report last year that more than 130 judges had failed to recuse themselves from cases involving companies in which they or their family members owned stock.

(NOTE: This story has been updated to include comment from the Administrative Office of the U.S. Courts.)

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Nate Raymond reports on the federal judiciary and litigation. He can be reached at nate.raymond@thomsonreuters.com.