A Wall Street Journal news article on Warren Buffett's disclosure that he has spent $10.7 billion accumulating a 5.4% stake in IBM for Berkshire Hathaway reports, "Berkshire secretly had been accumulating the shares since March, twice receiving confidential treatment from the Securities and Exchange Commission, which otherwise mandates that big investors disclose their holdings quarterly....The SEC issues about 60 confidentiality waivers per quarter to investors, allowing them to accumulate shares without disclosures that could drive up stock prices."
Neither the Wall Street Journal, which says it had an interview with Mr. Buffett, nor CNBC, which interviewed him for three hours Monday, seem to have asked him to justify receiving that confidential treatment. If the argument is that "disclosure could drive up stock prices," it doesn't seem to have particularly been the case in this instance. IBM stock was down three cents on the day yesterday, or 0.02 percent, on a day when the overall S&P 500 index was down 0.96%. Is driving up shares of IBM 94 basis points enough of an inconvenience to Mr. Buffett that it's worth granting him a special waiver? Granted, Mr. Buffett said he's pretty much done buying. If he had said he was in the middle of buying, he might have driven up the stock price more. But the required disclosure just forces holders to disclose their holdings, not whether they are done buying or plan to buy more.
Maybe you can make the argument for this kind of waiver in a thinly traded, small-cap stock, though one might also make the case that the disclosure is even more necessary in such a case to explain more dramatic moves in price. But IBM's market capitalization is $220 billion; Mr. Buffett probably could have accumulated his $10.7 billion in public without running up the price dramatically. If Mr. Buffett's interest in IBM stock is such a market-moving piece of information, how is it fair of the SEC to withhold that information from the other shareholders who sold in the past few months without knowing Mr. Buffett was buying?
The SEC's disclosure rules are kind of like the ObamaCare rules, to which the Department of Health and Human Services has granted 1,578 waivers, many of them to large and politically powerful entities like labor unions. It's not actually disclosure; it's the illusion of disclosure. Or disclosure unless you are Warren Buffett, who holds fundraisers for President Obama's campaign and just happens to be one of the richest people in America. It's situations like this that cause people to be skeptical of regulation in the first place, believing that rather than a rule of law that is applied consistently to everyone, the regulations just set up a situation that favors powerful players who are able to get special treatment.
A good follow-up story to this would be to list who got those 60 waivers. How many more were applied for and denied? How many more were in cases of large-cap stocks where the eventual disclosure didn't move the market much anyway? Are there former SEC officials working as fixers — sorry, lawyers — who specialize in getting these confidentiality applications approved? The SEC Web site has some guidance and background, including this: "A request for confidential treatment that is granted by the Division under Rule 24b-2 under the Exchange Act will extend to all documentation submitted in connection with the confidential treatment request, including the CT Application itself....Because CT Applications which include a request for confidential treatment for the application itself, and which are granted, obtain at least the same degree of protection as the underlying securities positions, a request for the CT Application made under the FOIA will be denied."