(Kyle Stock writes for WSJ’s FINS Finance.)

It’s pay season in corporate America, and look who’s got a stellar gig: the driver for Goldman Sachs CEO Lloyd Blankfein. The Wall Street firm forked over $185,110 for Blankfein’s car and driver, more than double what it paid to shuttle him around in 2009. One of Blankein’s sons, who also works at the firm, was paid about $170,000, according to the company’s proxy filing.

Traders were emboldened this week by 216,000 new jobs, but Wall Street was fascinated with one position in particular: the head of Nomura’s Americas investment bank.

The company abruptly announced Tuesday that Greg Schiffman, 41, left the position after only about a year. Jim DeNaut, who was hired from Deutsche Bank in August, has taken over.

The buzz built quickly among bankers and brokers: was this a sign that Nomura’s latest bid to break into U.S. league tables is unraveling? After all, it has pulled back from the U.S. before.

Nomura, on background, said “no.” We was told that it still plans to hire aggressively in the U.S. and Schiffman is simply “retiring.” Given 15 to 20 years of i-banker pay, a lot of people would retire, but i-bankers typically aren’t among them.

However, it’s important to note that Schiffman was a Lehman Brothers guy – acquired by Nomura, not hired. Given that, a cultural misfire or some other falling out is more understandable. And there is always the possibility that the firm simply liked DeNaut more. After all, he is seven years older than Schiffman and has an impressive CV.

Nomura’s bullish buildout has turned the heads of Wall Street’s most-talented workers. But you can bet those folks are reworking their risk assessments on a job offer from Tokyo.

In other unexplained departure news, Ken Costa, UBS veteran and famous rainmaker, quit Lazard’s London office. Costa, 62, apparently isn’t looking to retire.

Who knows, maybe these guys have an inside track on a job in Omaha.

Later in the week, about 170 LGBT finance workers converged on Deutsche’s Manhattan headquarters for the inaugural “Out on the Street” summit. According to new research presented at the event, only about half of Wall Street’s gay employees are out of the closet at work, a percentage that panelists tried to increase.

Mark Stephanz, a vice chairman in the global financial sponsors group at Bank of America Merrill Lynch, had a simple, but persuasive argument: “the amount of energy one expends on just hiding is incredible.”

Finally, Brevan Howard Asset Management, a London-based hedge-fund manager, snapped up a few more prop traders, this time from Goldman Sachs. Any decent Bloomberg jockey should take a look at the firm, given its string of offers.

And if Paul Volcker ever sours on being an economist, he’d make a great recruiter.

Weekend Reading:

Build not Buy: Merrill Lynch to Hire FA Trainers

Bill Cohan: The Reform That Wasn’t

Where Are the Women?: Only 8% of Senior I-Bank Ranks

Hello North Dakota: Is Moving for a Job Worth It?

If the NYSE-Deutsche Börse-Nasdaq-OMX-Euronext-ICE deal kerfuffle needs an extra dose of drama, check out this remarkable document from Nasdaq OMX.

The PowerPoint presentation insults the deal making and integration track record for NYSE and Deutsche Börse. In a table contrasting “The Promise” and “The Reality” Nasdaq says the Big Board hasn’t lived up to its promises for shareholders in its prior merger with Euronext. Here’s a sample:

The Promise

“This merger…will deliver significant shareholder value from substantial, quantified and deliverable synergies.” – NYSE Press Release, 1 June 2006

The Reality

“NYSE has a long way to go before benefits are fully realized. Investors should not expect significant EPS growth in the near term.” – Deutsche Bank Analyst Note, 11 February 2009

CLICK HERE to read the document. The M&A zingers start on page 18.

Maryam Omidi, Financial News, reports:

David Sokol’s surprise resignation from Berkshire Hathaway this week has reignited the debate over Warren Buffett’s successor.

There has been much already been written on:

* Todd Combs, the former manager of hedge fund Castle Point Capital
* Ajit Jain, who heads Berkshire’s reinsurance division
* Matthew Rose, head of the firm’s Burlington Northern Santa Fe railroad subsidiary
•Tony Nicely, who has built Berkshire’s Geico property insurance unit into one of the largest U.S. car insurers

But with Buffett’s top lieutenant, Sokol, out of the picture, it looks as if there’s a new contender in the running: Gregory Abel, who is far more elusive than his former boss. A search through news archives reveals just a few mentions of him.

“He’s been below the radar because Sokol was so ahead of him,” Andrew Kilpatrick, author of a book about Buffett, told Bloomberg News.

According to Bloomberg, 48-year-old Abel, who as former chief executive officer of Iowa-based MidAmerican Energy Holdings, was Sokol’s second-in-command, has been promoted been to chairman.

But he does get a lot praise in Buffett’s last few annual letters to his shareholders, The 80-year-old Oracle of Omaha heaped equal praise on both Sokol and his protégée for delivering strong profits. This year he lauded the pair for “outstanding results” after MidAmerican’s profits rose 7% to $1.2 billion in 2010. The year before, he described both as “terrific managers”.

“Ten years of working with Dave, Greg and Walter [Scott] have reinforced my original belief: Berkshire couldn’t have better partners,” he wrote. “They are truly a dream team.” In 2008, Buffett said both Sokol and Abel knew no other way to operate other than in a “first-class” manner.

Abel joined Berkshire in 2000 and, along with Sokol, has been integral to growing Berkshire subsidiary MidAmerican through a trail of acquisitions of natural gas producers in both the US and the UK. Eight years later he was named chief executive and Sokol took over as chairman.

Outside of the office, Abel is on the Drake University board of trustees, the executive board of the Mid-Iowa Council Boy Scouts of America, and the board of the American Football Coaches Foundation.

There are plenty of confusing things about Blockbuster, which is operating under bankruptcy-law protection. Why, for example, are there 96 copies of “No Strings Attached” and zero copies of “Black Swan”? Just sayin’.

Now add to the confusing things about Blockbuster the list of possible buyers for the video rental chain.

Korean telecommunications company SK Telecom wants a piece of Blockbuster. Financier Carl Icahn, who has had a long and largely painful investment in Blockbuster, is trying to buy in.

And now Deal Journal colleague Mike Spector is reporting Charlie Ergen, the man behind satellite-TV companies Dish Network and Echostar, also has submitted a bid to buy Blockbuster out of bankruptcy.

No, this idea doesn’t really make sense to Deal Journal, either. Spector is reporting that Ergen has notions that the Blockbuster brand could give a leg up to Dish’s video-on-demand service, and he sees a chance to use Blockbuster stores to sell subscriptions for Dish television service. Thin gruel rationale, yes, but a bite at Blockbuster is a pretty cheap risk. The starting bid to take over Blockbuster is less than $300 million.

This isn’t the first head-scratching distressed investment Ergen has made. Ergen also tried to take control of Sirius XM Satellite Radio in 2009, but was outmaneuvered by his old rival John Malone. It wasn’t really clear what Ergen would do with Sirius back then, either, but the satellite investment has been a huge windfall for Malone’s Liberty Media.

Wells Fargo analyst Marci Ryvicker said she believes Blockbuster could give Dish the entertainment programming for a potential “over-the-top” product–the term for services like Netflix that funnel movies or TV shows through the Internet.

“We had often thought that Charlie Ergen is interested in providing an over-the-top product but the one piece we were missing was how to get content–Blockbuster may be the (first) answer,” Ryvicker wrote.

Big props to Nasdaq OMX CEO Bob Greifeld. Not only has Greifeld performed a magic trick by pulling together a complex, $11.3 billion takeover bid for the New York Stock Exchange, but he already has consulted Dr. Spock and picked out a name for the combined company.

Welcome to: NASDAQ NYSE Euronext Group Inc.

Sure, it’s a bit of a mouthful. It shortchanges the Scandinavians (OMX’s origins are in Sweden and Finland.) But at least Nasdaq has made a choice.

Contrast that with the folks at Deutsche Börse and the NYSE, who still haven’t picked a moniker for their proposed company after two months. Heck, they’re even asking for suggestions from their employees, and probably the resident fortune teller in Lower Manhattan.

In fairness, the Germans and the NYSE have a tougher time of it, as our MarketBeat buddy Dave Kansas pointed out. In selecting a name, they need to placate regulators in the U.S. and Europe, and they have to navigate the dangerous waters of pride. The initial idea was the split the baby by picking a nametag that doesn’t have the word “Deutsche” or the acronym “NYSE” in it– something soothingly bland like “Global Exchange Inc.”

That idea, of course, has pleased no one. With the Germans taking over the iconic New York Stock Exchange, U.S. law makers have cried foul over the idea that the Big Board might not figure in the name of the merged company.

Deals of the Day gathers all the biggest news of the morning related to mergers and acquisitions, bankruptcies, financing and private equity. Deal Journal’s homepage is http://blogs.wsj.com/deals. You can see real-time updates of our posts and our favorite deal-related articles on other Web sites through our Twitter feed at http://twitter.com/wsjdealjournal.

Mergers & Acquisitions

Nasdaq goes all in: Nasdaq and IntercontinentalExchange launched an $11.3 billion bid for NYSE Euronext, topping a rival offer from Deutsche Börse. Nasdaq would get stock markets in the U.S. and Europe, while ICE would get the derivatives business. [WSJ]

Telesat: The Canadian satellite company is weighing takeover offers from EchoStar and Carlyle, and may decide on a possible sale in the coming days. [Bloomberg]

Terra Firma: The PE firm run by Guy Hands is putting the Odeon & UCI cinema chain up for sale in a deal likely to be valued at between £700 million and £1 billion ($1.1bn-$1.6bn). [FT.com]

Mentor Graphics: The chip-design software maker rejected Carl Icahn’s offer of a $220 million loan and said it plans to go ahead with a convertible debt offering. [Reuters]

Buyside

TPG: Private-equity powerhouse TPG Holdings has reached a deal to sell nearly 5% of itself to sovereign-wealth funds operated by Kuwait and Singapore. [WSJ]

3i Group: The PE firm said that business in Northern Europe was strong but that several of its U.K. companies were underperforming, specifically those in the public and consumer sectors. [Dow Jones Newswires]

William Ackman: The activist investor teamed up with a former associate to acquire a 9.9% stake in Alexander & Baldwin. [Bloomberg]

Berkshire Hathaway

L ‘affaire David Sokol: A brief phone call with a top executive has landed billionaire investor Warren Buffett in one of the most sensitive positions in his 60-year business career. [WSJ]
Related: Buffett has said that he can’t do without Berkshire. But one question that is becoming more urgent is whether Berkshire can do without Mr. Buffett. [WSJ]

Financial Institutions

Morgan Stanley/ Mitsubishi UFJ: A joint venture between Mitsubishi UFJ Financial and Morgan Stanley will likely report a $956 million loss tied to bond trading. [WSJ]

Ireland’s banks: Ireland is on track to nationalize its banking sector after its government uncovered a €24 billion ($33.9 billion) capital shortfall in the latest round of “stress tests” of top banks. [WSJ]

The Trial of Raj

Adam Smith: A lawyer Raj Rajaratnam tried to punch holes in the testimony of a former employee who contends he gave the hedge-fund founder inside information about a technology company merger. [WSJ]

Legal & Regulatory

Winifred Jiau: The former consultant to an “expert-networking” firm has withdrawn her application to be released from a New York jail while she defends herself against insider-trading charges. [WSJ]

Discount window: One of the biggest secrets of the financial crisis was disclosed Thursday when the Federal Reserve released thousands of pages of data showing heavy discount-window borrowing by foreign banks, regional U.S. banks and institutions fighting for survival. [WSJ]

Stock exchange operator Nasdaq OMX Group has a long list of reasons why its rival bid for the New York Stock Exchange is waaaay better than a takeover offer from the Germans at Deutsche Börse.

Deal Journal has translated the Nasdaq/ICE news release to bring you what the companies probably meant to say, if they weren’t handcuffed by corporate jargon and lawyers.

1) The joint Nasdaq/ICE offer for the NYSE, “Offers greater long-term value for stockholders by putting existing businesses under managements recognized for integration capabilities and efficiency.”

Translated: Do you really trust foreigners and Duncan Niederauer, the current NYSE Euronext CEO and the proposed CEO of a combined Deutsche Börse-NYSE, to handle a big and important integration of major global finance centers? Subtext: Nasdaq CEO Bob Greifeld and Niederauer don’t like each other very much. Greifeld blamed his NYSE counterpart for worsening last year’s Flash Crash. Niederauer slips whole milk into Greifeld’s skim milk cartons. (No, not really.) And Deutsche Börse did a crummy job with its last deal, for the International Securities Exchange.

2) “Together, NASDAQ OMX and NYSE Euronext would strengthen the international competitive position of the U.S. at a time when companies and investors are increasingly being drawn to other financial centers.”

Translated: Flag waving! The U.S. is falling behind in the world of global stock exchanges. Everyone is bulking up by marriage–the Singapore exchange is teaming up with the Aussies, the Canadians are marrying the folks in London. We in America need our own powerhouse stock exchange, based in America for American companies. Did we mentions the Germans want to own the iconic New York Stock Exchange? USA! USA! USA!

3) “Given that our proposal is clearly a superior proposal, we hope that NYSE Euronext’s Board will recognize this opportunity as well as the benefits for NYSE Euronext’s employees and customers.”

Translated: Dear NYSE Euronext board: Don’t you dare say no to us. We will crush you.

4) “The NASDAQ OMX/ICE proposal requires approval from the majority of NASDAQ OMX and ICE stockholders, versus the requirement of a 75% acceptance level of the exchange offer by Deutsche Boerse’s shareholders.”

Translated: Give it up, Germans, there’s no way you can persuade enough shareholders to vote for your crazy takeover attempt of the Big Board. Especially now that we havee waved 19% more money in the faces of shareholders.

5) “The name of the combined entity following NYSE Euronext’s merger will be NASDAQ NYSE Euronext Group, Inc.”

Translated: The Germans and the NYSE have been so confused, they had to ask their employees what to name their combined exchange. Heck, that combined company might NEVER have a name. Ever. How do you feel about calling the New York Stock Exchange the “We’ll Fill in This Blank Later” Exchange? But we already have a name picked out. Take that, Niederauer!

Nasdaq OMX is trying to bust up a takeover of fellow stock exchange NYSE Euronext.

Nasdaq, with the aid of Atlanta’s IntercontinentalExchange, just lobbed an $11.3 billion offer for NYSE Euronext. The bid, valued at $42.50 in cash and stock, is the long-awaited rival offer for the parent company of the New York Stock Exchange.

NYSE already has agreed to a $35-a-share takeover deal from Germany’s Deutsche Börse, a deal that has sparked nationalistic hand wringing on both sides of the Atlantic.

Nasdaq, of course, thinks its offer is far superior. It is a complex one to evaluate for NYSE shareholders, though. The rival bid offers NYSE stockholders a per-share value of $14.24 in cash, 0.4069 share of Nasdaq OMX common stock and 0.1436 share of ICE common stock. That’s no clean cash-and-carry deal.

NYSE shares are soaring in premarket trading, up nearly 12% to $39.34. The stock price had been trading above the value of the Deutsche Börse takeover offer–a classic sign that investors were waiting on a rival bid. Credit to Nasdaq OMX CEO Bob Greifeld for performing the magic trick of cementing a complex offer with ICE. Now, the hard part begins: persuading NYSE shareholders, board members, executives, regulators and the coffee cart guys in front of the New York Stock Exchange on the merits of his deal.

As a sop to flag-waving Americans, Nasdaq points out that the combined NasdaqNYSE/EuronextICE would be based in good ol’ New York City, keeping the Big Board HQ in its longtime home. Deutsche Börse had proposed a multiheadquartered combined company, but the main locus of power would be in Europe.

Nasdaq and ICE said they have received “strong support” from Bank of America and Wells Fargo, which the exchanges said would be prepared to arrange financing for the NYSE takeover.

Our colleague Aaron Lucchetti has reported on the personal dislike between Nasdaq OMX CEO Bob Greifeld and his counterpart at NYSE, Duncan Niederauer, who is slated to run the combined Deutsche Börse-NYSE. Deal Journal couldn’t help but think this bullet point from the Nasdaq/ICE news release is a direct shot at Niederauer:

The Nasdaq/ICE offer, the news release says, “Offers greater long-term value for stockholders by putting existing businesses under managements recognized for integration capabilities and efficiency.”

David Sokol started buying shares of Lubrizol the day after he asked Citigroup to arrange a meeting with the CEO of Lubrizol to talk about a transaction with Berkshire Hathaway. A robust debate has developed on both the propriety and legality of those trades.

For those of you who have come embroiled in this ongoing debate, I have a quiz for you (your comments are most welcome, of course.) All of these are hypothetical situations. They are not based on any facts and are for the purpose of making my point. They address Sokol’s fundamental defense as articulated on CNBC and in Warren Buffett’s press release:  That Sokol was not in possession of material non-public information about Lubrizol when he bought shares.

1.       Betty, a secretary in Sokol’s office, stumbles on a note Sokol left on the fax machine. The note is addressed to Citigroup from Sokol and says:  “Although, I haven’t talked to him, based on what you have shown me I think Warren might react favorably to Berkshire buying Lubrizol. Can you set up a meeting for me with the Lubrizol CEO?” A Citi banker scribbles on the bottom “Yes, we will call tomorrow and get right back to you.” Betty buys $5000 of Lubrizol stock later that day.

Is there any doubt Betty would and should be fired for that?  Did she violate the law?

2.      Sokol calls Tom, a lawyer who advises Berkshire. He asks Tom to take a quick look at Lubrizol’s SEC filings to see if there are any “showstoppers” to a deal.

Sokol says “By the way Tom, I think Lubrizol looks like a good investment whether or not Berkshire makes a deal. So far all I have done is ask Lubrizol for a meeting. I haven’t mentioned this to Warren and he makes all the decisions. So if you want to invest yourself, it is fine to go ahead.  In fact, I bought some shares this morning.” Tom buys $100,000 of stock.

Have Sokol or Tom violated the law?

3.      Sokol’s friend Ben is an executive of XYZ Corp. Like Berkshire, XYZ is acquisitive, but Ben doesn’t have the final say on deals. Only Ben’s boss makes acquisition decisions. But Ben sometimes identifies good targets.  Sokol and Ben have an informal arrangement. When one sees what might be a good investment or an acquisition target, each tells the other so he can each buy stock. It is understood that once they propose a deal to their boss, they will not further discuss the target.
If Sokol called Ben and told him he was trying to get a meeting with Lubrizol and Ben bought shares, would either Sokol or Ben have violated the law?

4.      The banker at Citi who met with Sokol calls his trading desk. He tells the traders “Sokol seems to like the look of Lubrizol and has asked us to try to set up a meeting. I don’t know where this is going. Warren hasn’t even seen the deal. Nothing may happen here but I thought you might be interested.”
The Citi trading desk over the course of the next two weeks puts together a portfolio of Lubrizol shares and options representing approximately 3% of the outstanding shares of Lubrizol.

Did Citi violate the law?

Sokol’s and Buffett’s argument is that since Sokol has no authority to commit Berkshire to an acquisition transaction, Sokol’s interest in Lubrizol is not “material” in the eyes of the law.  If that piece of information is not material, then there is likely no violation of law in any of these four examples, although each represent poor judgment and likely violate corporate policy.

So, was Sokol’s lack of final deal-approval authority sufficient to make it immaterial? To answer that question you might want to look at how Lubrizol executives reacted to the phone call they received requesting a meeting with Sokol.
First here is what they did not do: They did not ask “But has Mr. Sokol talked to Mr. Buffett? Does he have the authority to talk to us on behalf of Berkshire?”

Instead, Lubrizol quickly called a special meeting of its board of directors where it had “extensive and thorough discussions about Berkshire’s possible interest.” Then the board hired a lawyer and a financial adviser. Four days later, the board met again to discuss a comparison of an acquisition by Berkshire with other alternatives. The board then instructed the Lubrizol CEO to meet with Sokol.

It is instructive that no one involved with Lubrizol ever seems to have questioned whether Sokol had authority to speak for Berkshire. He may not have had authority to sign the acquisition agreement, but that does not mean his interest in an acquisition by Berkshire is insignificant.

Good lawyers for Sokol will have good defenses for him. But to me, these facts look bad. We all make mistakes and maybe in the scheme of things, this isn’t high on the list of egregious conduct by corporate officers.

After Watergate we often heard, “It isn’t the offense it is the cover-up.”  There has been no cover up here. But the lesson of Sokol may turn out to be “it isn’t the offense, it is the stonewalling.”

Berkshire and Sokol should admit that a serious error was made here.  If they did that, perhaps all could be forgiven. But senior officers trying to defend front-running a potential deal will ultimately just make things worse.

(Note: the author owns shares of Berkshire Hathaway.)

***

Ronald Barusch spent more than 30 years as an M&A practitioner at Skadden, Arps, Slate, Meagher & Flom LLP before retiring last year. He is no longer affiliated with the firm and the views expressed here are his own.

***

Before David Sokol became the world’s most famous ex-employee of Berkshire Hathaway, he was a self-published author.

Sokol in 2007 issued a 127-page business guide, “Pleased but Not Satisfied” which is packed with personal biography and anecdotes (go karts and irate shoppers returning fatty roasts, for example) and business aphorisms influenced by some of Sokol’s mentors.

Deal Journal plucked a few choice nuggets from “Pleased But Not Satisfied.”

Sokol on integrity:

[W]hat is integrity? First of all, it is not as complicated or gray as many would have you believe. Integrity is merely doing what is right, even when no one is looking. It is being honest with people. It is being forthright and candid. It is honoring a commitment even when it is not convenient. It is admitting when you are wrong. It is maintaining confidentiality. It is giving proper credit to an individual’s contributions or achievements. It is playing by the rules and not attempting to get around them.”

Sokol on his tough evaluation of employees:

“A technique I utilize in evaluating my team is to first keep a notebook, updated at least monthly, as an employee’s successes or failures during the month. Waiting until year-end often places too much emphasis on October and November outcomes, as opposed to the entire year. Then, after separately evaluating each employee, I force myself to rank my team in the order in which I would terminate each member if I was forced to do so one at a time…Employees discover early and often how their performances measure up versus expectations. Further, it enables us to identify future high-performance individuals and help them acquire the skills necessary to achieve their career goals.”

Sokol on Warren Buffett:

“Warren has created a perfect haven for businesses that want to grow in a sensible manner. Berkshire Hathaway companies avoid the public market pressure of quarterly earnings guidance, fads or short-term trade-offs versus long-term superior results. Warren creates a climate for business managers akin to playing in the Pro Bowl, but where individual performance takes a back seat to team performance.”

Lubrizol, the company at the heart of a controversial resignation by Berkshire Hathaway executive David Sokol, issued its first public comments about the surprise move.

“I’m sure that many of you have seen Berkshire Hathaway’s March 30th press release announcing the resignation of David Sokol. The matters discussed in that press release do not in any way alter the terms or the timing of our proposed transaction with Berkshire Hathaway,” Lubrizol CEO James Hambrick said in an electronic message to company employees. The message was released in an SEC filing.

To recap: Sokol bought stock in Lubrizol around the time he was discussing with the company and with Berkshire’s Warren Buffett about a possible takeover of the specialty chemicals company. Sokol and Buffett said the stock purchases weren’t unlawful, and weren’t related to Sokol’s resignation from Berkshire Hathaway. Two weeks ago, Berkshire announced a deal to buy Lubrizol for $9 billion, a deal that increased the value of Sokol’s stock in the company.

“We are continuing to work with Berkshire Hathaway to complete the merger as quickly as possible,” Hambrick said in his message to employees. “As we disclosed in our preliminary proxy statement that we filed with the SEC on March 25, 2011, we continue to expect to complete the merger in the third quarter of 2011.”

Sbarro Inc., the fast-food pizza chain that dots shopping-mall food courts around the world, is preparing to file for Chapter 11 bankruptcy protection as soon as next week, Deal Journal colleague Mike Spector is reporting.

Deal Journal is revisiting a post we did in January running through highlights and lowlights of the company’s history.

Sbarro has been cheesed by its debt load, and by fewer shoppers at malls, which means fewer people willing to queue up with plastic trays for its pizza and pasta. The company lost about $29.3 million during the first nine months of last year on sales of roughly $239 million, Spector reported. The chain also lost money in 2009.

Feel free to breeze through our post while enjoying a slice of Sbarro’s Meat Delight, a pizza topped with sausage, pepperoni, ham chunks, bacon and parsley (for a dash of color, apparently). Calories per slice? 780.

***

1956: Believe it or not, there is actually something Italian about Sbarro’s. The Sbarro family opens an Italian grocery store in Brooklyn, N.Y., selling cheese, salami and sausage.

1967: Kicking off what would be the core of the company, Sbarro opens its first mall location in Brooklyn’s Kings Plaza Shopping center.

1985: Goin’ public: Sbarro became a public company. After the Sbarro family tried several times to buy back the company from public investors, they finally succeeded in 1999, paying roughly $400 million.

2001: Sbarro said it was exploring a sale of the company. In a low point for the company the same year, there was a suicide bombing at a Sbarro outlet in Jerusalem.

2007: Private-equity acquisition! Just before Thanksgiving 2006, private-equity firm MidOcean Partners announced it agreed to buy the restaurant chain from the three sons of Gennaro and Carmela Sbarro, who started the first Brooklyn outlet.

(Irony alert: MidOcean used to own Jenny Craig.) Other companies in MidOcean’s stable include LA Fitness, footwear maker Totes, binocular company Bushnell and Insight Communications.

2009: Sbarro tries again in Japan, opening a location in downtown Tokyo. Sbarro had franchises in Japan starting in 1997 but it pulled out of the country in 2001. Sbarro also has outlets in Turkey, Belgium, Russia and even some improbable places — like the Moldova Mall in the tiny Eastern European country. Overall, there are more than 1,000 Sbarro locations in about 40 countries.

***

Perhaps not surprisingly — given the frequency with which Americans encounter Sbarro at malls, airports and highway rest stops — there are a remarkable number of Sbarro references in pop culture. Here are three of our favorites.

A 2005 skit on “Saturday Night Live” took a simple concept -– Sbarro-goers seated near the door of a restaurant on a cold day get wind-whipped every time a new customer comes in –- and elevated it to (low) art.

In a season two episode of “The Office,” the hapless Michael Scott makes a trip to New York to meet the corporate honchos. Standing in Times Square, the beating heart of the tourist choked, f ive-shirts-for-$10 Manhattan, Michael refers to Sbarro as “my favorite New York pizza place.” (Note to out of towners: Yes, there are six Sbarro locations in Manhattan, but eat somewhere else. Please.)

How prescient? In 2009, Stephen Colbert pondered whether Sbarro deserved a bailout. The fake news host concluded no, because “the Parmesan cheese gets stuck in the shaker and won’t come out as fast as I like.” Instead, as a helpful cost cutting strategy, Colbert suggested a  “Crust Lovers Pizza” to save on those pesky costs like cheese, sauce and toppings. We’ll see if Sbarro’s restructuring advisers at Kirkland & Ellis and Rothschild take this idea to heart.

It’s long been my belief that you could never be too cynical about our leaders on Wall Street or in Washington.

But given the recent revelations over insider dealing at the Galleon Group and now David Sokol’s greasy wheeling and dealing with Lubrizol, it’s clear, that I was way too forgiving.

You can never be too cynical about any leader in America. Even Warren Buffett.

Did Buffett break the law in allowing Sokol, his employee, to front-run Berkshire Hathaway’s proposed acquisition of Lubrizol? Almost certainly not.

But has Buffett conducted himself in line with his own high ethical standards, in a way befitting America’s most revered corporate leader?

Sorry, President Obama and the rest of you Buffett fans, it’s not even close.  As my WSJ colleagues make clear, the timeline of Sokol’s purchases of Lubrizol shares makes for an ugly fact pattern.

Buffett showed a distinct lack of interest in the exact size and timing of Sokol’s actual share purchases. And judging by yesterday’s press release, Buffett appears untroubled by how Sokol came up with the Lubrizol acquisition opportunity in the first place.

Remember Sokol was sent material by Citi’s investment bankers not its private wealth managers. In his CNBC interview, Sokol was a bit fuzzy on the details. But it’s clear he met with Citi and asked for a meeting with the Lubrizol CEO as a representative of Berkshire Hathaway, not in his own private capacity.

Does Mr. Buffett allow all of Berkshire’s senior management to pick and choose their shareholder duties as they see fit? Or is it only his heir apparent that he let get away with such outrageous behavior?

Not that Sokol or Buffett consider the behavior outrageous. Sokol seemed unaware of the problem on CNBC this morning.

And Buffett’s press release said nothing about Berkshire’s own Code of Conduct. It’s also apparently his final word on the matter. “I have held back nothing in this statement. Therefore if questioned about this matter in the future, I will simply refer the questioner back to the release.”

It’s no surprise that the terse defensiveness of Buffett’s press release reminded me of the fierce denials that have come from Rajat Gupta’s lawyer in the Galleon proceedings.

Put aside the “legality” of Gupta’s various chats with his buddy Rajaratnam. Gupta engaged in behavior that by the standards of the senior partner world-wide (emeritus) of McKinsey and Goldman Sachs board member were clearly wrong.

What standard is Buffett using to evaluate his and Sokol’s behavior?  Is it the law? Or is it an even higher standard that is founded on acting beyond reproach?

It should be the latter, but today in America, it rarely is. For years, we’ve been easy on our leaders. We’re too quick to excuse their failings, too eager to make them “human.”

Think of Clinton’s and Spitzer’s extra-martial affairs. Think of the many violations of NCAA football and basketball coaches. Think of the Wall Street CEOs who ended up bankrupting everyone but themselves.

Of course,  leaders make mistakes. But the most disturbing element of these mistakes is just how out of touch our leaders often seem.

In many instances of wrongdoing, we’re not talking about “gray” situations.  We’re far into the realm of  “just what was that guy thinking?”;  Clinton in the Oval Office with Lewinsky;  Gupta calling Rajaratnam 23 seconds after his Goldman board call; Buffett sanctioning Sokol to deal on Berkshire’s behalf while buying shares on his own account.

Does America still have leaders who can see the world as the common man might? Does America still have leaders who haven’t let riches or public adulation go to their head?

Until now, you would have thought the Oracle of Omaha would be just that leader.  And you would have been wrong.

By Shira Ovide and Ronald Barusch

Some executives resign to “spend more time with their families.” David Sokol, the Berkshire Hathaway executive who resigned under a cloud, is decamping to make more money for his family. Which leads to the inevitable question: How much money does Sokol have, anyway?

Sokol said he wants to put together his own “mini-Berkshire,” he told CNBC today. He also expressed a wish to invest his money to create an “enterprise which will provide opportunity for my descendents and funding for my philanthropic interests,” according to Sokol’s resignation letter quoted by Warren Buffett.

In his decade-long role as a Berkshire official, and as the unofficial fix-it man for troubled Buffett businesses such as NetJets, Sokol has no doubt collected a tidy sum to funnel into philanthropic interests.

The scale of his compensation and wealth are not known. Berkshire does not disclose Sokol’s total annual compensation, nor his options or stock holdings in Berkshire Hathaway.

However, Sokol also serves as chairman of MidAmerican Energy Holdings Co., an energy company in which Berkshire owns an 89.8% stake. A piece of MidAmerican trades shares on an over-the-counter exchange, and the company discloses compensation information for Sokol as part of its SEC disclosures.

Here is a look at what Sokol has pulled down just from MidAmerican.

In the past three years, MidAmerican has disclosed total compensation for Sokol of $24.2 million. The figure include his salary, bonuses, the changing value of his pension, company contributions to his 401(k) and other items, according to MidAmerican’s recent annual report.

Sokol also has pension benefits that MidAmerican valued at $7.8 million as of Dec. 31, according to the annual filing.

Sokol’s employment contract with MidAmerican entitles him to an estimated cash payment of $1.7 million if he loses his job involuntary “without cause.” It’s unclear if Sokol’s resignation will entitle him to the payout. (He doesn’t collect the severance if his departure is considered a retirement.) In any case, Sokol can walk away with with a pension value of $8.1 million, MidAmerican disclosed in the annual report. (Read Sokol’s employment contract HERE.)

Sokol also made a paper and real gain of roughly $3 million on his now controversial purchases of stock in Lubrizol, the specialty-chemicals company Berkshire later agreed to buy for $9 billion.

We don’t know how fat Sokol’s brokerage account is, but over three days in early January – before Sokol began to talk to Buffett about acquiring Lubrizol – Sokol bought roughly $10 million of Lubrizol shares. On CNBC today, Sokol said the purchases were part of his normal investments.

Sokol said in the interview that he doesn’t trade a lot, pegging the number of annual investment decisions at around three or four. After Berkshire agreed earlier this month to buy Lubrizol for $135 a share, Sokol’s paper gain on the shares is roughly $3 million.

Sokol also owns more than 1.4 million shares – or 20.24% — of a small bank, Middleburg Financial Corp. The company’s price is shooting up more than 9% today, giving Sokol a paper gain of roughly $1.9 million from yesterday.

Quick recap for those of you haven’t heard: David Sokol, widely considered the leading contender to succeed billionaire Warren Buffett as head of Berkshire Hathaway has resigned.

The news came at the same time that Warren Buffett revealed that Sokol had purchased roughly $10 million of Lubrizol shares before Berkshire agreed to buy the company on Sokol’s suggestion.

Securities lawyers have debated whether Sokol’s dealings could fall into a legal gray area. Deal Journal wants to know what you think. Here is what lawyers quoted by The Wall Street Journal today said about that:

“One key question, lawyers say, is whether Mr. Sokol knew that he would pitch a Lubrizol deal to Mr. Buffett, or even that he might do so, at the time he bought Lubrizol shares. If Mr. Sokol did know at that time, that could suggest he had material information at the time he bought the shares, lawyers said.

“However, lawyers said it could be hard to show that Mr. Sokol misappropriated information in breach of a duty to Berkshire. A question would be whether in buying shares he wrongly used knowledge about what Berkshire was likely to do.”

David Sokol sat down with CNBC this morning, in his first extended TV interview since he resigned from Warren Buffett’s Berkshire Hathaway.

Buffett also disclosed that Sokol had bought stock in Lubrizol, an industrial chemicals company Berkshire is acquiring, before the $9 billion deal was struck earlier this month. The revelations have raised questions about whether Sokol’s stock purchases were improper.

In the roughly 30-minute interview, Sokol says the stock purchases were benign investments for his own account, and he explains why sticking around at Berkshire — he had tried to quit twice before — was a “mistake.”

(Catch Deal Journal’s live recap of the interview HERE.)

Deals of the Day gathers all the biggest news of the morning related to mergers and acquisitions, bankruptcies, financing and private equity. Deal Journal’s homepage is http://blogs.wsj.com/deals. You can see real-time updates of our posts and our favorite deal-related articles on other Web sites through our Twitter feed at http://twitter.com/wsjdealjournal.

Berkshire Hathaway

David Sokol, widely seen as the leading contender to succeed billionaire Warren Buffett at the helm of Berkshire Hathaway, resigned unexpectedly amid surprising revelations about his personal stock trading. [WSJ]
Related: Sokol’s surprise departure from the sprawling conglomerate removes the widely presumed front-runner from contention and winnows the pool of internal candidates in one of the longest-running succession dramas in corporate America. [WSJ]
Related: Sokol’s rapid ascent at Berkshire. [WSJ]

The Trial of Raj

Raj Rajaratnam: The Galleon Group founder had a secret pipeline into the boardroom at Goldman Sachs Group Inc., allowing the hedge fund to dodge in and out of the investment bank’s shares at times of peak uncertainty among most investors, jurors heard Wednesday. [WSJ]

Mergers & Acquisitions

Vodafone: The company said it has paid $5 billion to buy out its joint-venture partner in India, in a move aimed at strengthening the mobile giant’s position in the region. [WSJ]

Three Spanish savings banks rejected a plan to merge into the nation’s third-largest caja, forcing Caja de Ahorros del Mediterraneo (CAM) to seek a state bailout. [Bloomberg]

NY Mets: The owners of the Mets are seeking $200 million for a minority portion of the team. [NY Times]

Financial Institutions

Fed Bond sales & AIG: The Fed will gradually auction off a large portfolio of subprime-mortgage bonds from the bailout of AIG, after the insurer’s offer to buy back the once-toxic securities sparked investor interest. [WSJ]

The financial rescue: Treasury officials laid claim to an eventual $23.6 billion gain for taxpayers on the entire rescue program, despite doubts from skeptics about just how Washington crunched the numbers. [NY Times]
Related: Neil Barofsky on where the bailout went wrong. [NY Times]

On another note, what will Warren buy next? Buffett’s hunt for a large acquisition could lead to targets like Eaton, Illinois Tool Works or Cliffs Natural Resources, all of which seem to fit his recent preference for growth in industries outside of his core insurance unit. [WSJ]

Legal & Regulatory

The FDA & Insider Trading: As Food and Drug Administration officials examine internal controls in the wake of insider-trading charges filed against a longtime employee, a primary challenge will be how to limit access to valuable information without clogging up the approval process. [WSJ]

Steven Cohen: The former wife of SAC Capital Advisors founder Steven A. Cohen can’t pursue a lawsuit against the hedge-fund manager, a judge has ruled. [WSJ]

Reverse convertibles: Securities regulators have broadened their probes into whether Wall Street sold a complex type of bond without fully disclosing the drawbacks to individual investors. [WSJ]

Buyside

PE in China: Financier Jacob Rothschild has launched a $750 million private equity fund to help Chinese investors to take part in international deals. [Reuters]

Capital Markets

Chrysler: The auto maker’s Sergio Marchionne said an initial public offering of Chrysler shares might not happen this year, citing time constraints. [WSJ]

Prada: The Italian fashion house has filed a request to list its shares on the the Hong Kong Stock Exchange and is planning to sell a 20% stake in the family-run company during the initial public offering. [WSJ]

Equity Offerings: The U.S. drove global equity issuance in the first three months of the year, stealing Asia’s crown, after a spate of blockbuster U.S. IPOs backed by private equity firms. [Reuters]

Companies & Industries

Tax break: GE isn’t the only corporate giant striving to pay as little as possible under the tax code. Wall Street firms, battered by losses during the financial crisis, wrote down their tax bills using a variety of methods and claimed benefits against other tax bills. [WSJ]

Dirty little secret: One of the long-standing raps on the auditing profession is that too many of its practitioners suffer from a check-the-box mentality, where rigid adherence to mindless rules obscures their ability to see the bigger picture. [Bloomberg]

Amid the surprise resignation of Warren Buffett lieutenant David Sokol, commentary is turning to whether revelations about Sokol’s stock purchases will taint Buffett’s squeaky clean image.

Buffett said in his letter yesterday than neither he nor Sokol believe stock purchases Sokol made in a company Berkshire later agreed to acquire were unlawful in any way.

But in a recent memo to Berkshire Hathaway managers, Buffett made clear that he believes avoiding the appearance of impropriety is as important as hewing to the letter of the law:

“The priority is that all of us continue to zealously guard Berkshire’s reputation. We can’t be perfect but we can try to be. As I’ve said in these memos for more than 25 years: We can afford to lose money – even a lot of money. But we can’t afford to lose reputation – even a shred of reputation.” We must continue to measure every act against not only what is legal but also what we would be happy to have written about on the front page of a national newspaper in an article written by an unfriendly but intelligent reporter.

Sometimes your associates will say ‘Everybody else is doing it.’ This rationale is almost always a bad one if it is the main justification for a business action. It is totally unacceptable when evaluating a moral decision. Whenever somebody offers that phrase as a rationale, in effect they are saying that they can’t come up with a good reason. If anyone gives this explanation, tell them to try using it with a reporter or a judge and see how far it gets them….

Somebody is doing something today at Berkshire that you and I would be unhappy about if we knew of it. That’s inevitable: We now employ more than 250,000 people and the chances of that number getting through the day without any bad behavior occurring is nil. But we can have a huge effect in minimizing such activities by jumping on anything immediately when there is the slightest odor of impropriety. Your attitude on such matters, expressed by behavior as well as words, will be the most important factor in how the culture of your business develops. Culture, more than rule books, determines how an organization behaves.

David Sokol, the Berkshire Hathaway executive who quit under a cloud, is on CNBC this morning. Deal Journal brings you Sokol live, in his own words.

In the interview, Sokol said his decision to resign this week wasn’t related to his purchases and sales of stock in Lubrizol, a company he helped convince Warren Buffett to purchase. Berkshire’s $9 billion acquisition of Lubrizol was announced just weeks ago.

Instead, Sokol said a resignation “has been in my mind for about 2 1/2 years.” He said — as Buffett said in his remarkable letter last night –that he had tried to quit twice before but was talked out of it. Sokol said it was probably a “mistake” to decide to stick around at Berkshire the last time around.

Sokol also said he bought Lubrizol stock because he thought it was a good investment, and had no idea whether Buffett would bite on his idea to take over the maker of industrial lubricants and additives. “I didn’t know something others didn’t know” about Lubrizol, said Sokol.

More from the interview:

11:42 am | by Shira Ovide

Sokol said what he really wants to do is to create a "mini Berkshire" with his family's own money.

11:44 am | by Shira Ovide

Sokol is asked, did you learn you weren't the expected successor to Buffett's role as CEO of Berkshire Hathaway. "I don't know what names are in the envelope," Sokol said. He said he's never talked to Buffett about succession.

11:46 am | by Shira Ovide

Sokol is finally asked about his stock purchases and shares in Lubrizol, the chemicals company Berkshire later agreed to purchase, as Sokol's urging. "The thing people need to understand is I’ve never had any authority at Berkshire to invest a dollar in stocks.�He said he always looks for companies to invest in personally and then forward to Berkshire if it fits.

 

11:49 am | by Shira Ovide

Sokol explains why he bought 2,300 Lubrizol shares on Dec. 14 -- a day after talking with Citigroup bankers about possible transactions in Lubrizol -- and then sold the 2,300 shares a week later. Sokol said he put in an order to buy 50,000 shares with a limit order at $104. He only got in 2,300 shares. And then a week later, he was doing some tax planning and sold some of his holdings where he had short term losses and gains.

11:52 am | by Shira Ovide

Sokol clears up any confusion about whether he initially indicated interest (around mid-December, before his biggest slug of stock purchases) in talking with Lubrziol for his own possible investment or for Berkshire. Sokol said the Citi banker he tasked with reaching out to Lubrizol "certainly would have inferred" that his interest in Lubrizol was in some way on behalf of Berkshire.

11:49 am | by Shira Ovide

Sokol says he can understand why people raise questions about the appearance of impropriety over his Lubrizol stock sale. But he says again that he has no decision making power on what companies Buffett buys or sells. "I'm trying to invest my family's capital," and passes on interest to Buffett in possible investments when it makes sense.

11:50 am | by Shira Ovide

Has Sokol done this before? Has he bought shares in companies that he pitched Buffett to buy? Sokol says Buffett has never been interested in companies he's brought to him as possible takeover targets.

11:52 am | by Shira Ovide

"I don't believe I did anything wrong," Sokol says. He says he was investing in a company he believed in. He compares it to Buffett buddy Charlie Munger's ownership of a stake in BYD, the Chinese battery company, before Munger suggested Buffett invest in the company. (Buffett did.)

12:01 pm | by Shira Ovide

Intriguing. Sokol said the reason Buffett learned about Sokol's specific stockholdings in Lubrizol is because Berkshire CFO Marc Hamburg Lubrizol CEO James Hambrick called Sokol and said Buffett mentioned Sokol owned Lubrizol shares. Hamburg wanted to know the exact amounts and details because they Sokol trades would need to be disclosed. Buffett in his letter yesterday simply said Sokol mentioned in passing his stock ownership in Lubrizol. But Buffett was aware of the stock holdings enough to pass it onto to the CFO.

11:57 am | by Shira Ovide

Sokol says he's not a very active investor. He says he makes three or four decisions a year.

12:03 pm | by Shira Ovide

"I didn’t know something others didn’t know� about Lubrizol when he bought stock, Sokol says.

12:01 pm | by Shira Ovide

Sokol is pressed about the timing of his resignation -- just 10 days after Buffett said he learned the specific details about Sokol's stock purchases and sales in Lubrizol. Sokol said the decision was driven more by the timing of the Berkshire annual meeting and the completion of the Lubrizol deal announcement. "I thought it was an ideal time," he says.

12:08 pm | by Shira Ovide

Sokol is asked, you can see that someone might see Buffett accepted your resignation because of how the Lubrizol stock transactions would have looked? Sokol said he tried to resign twice before, and Sokol said it was a "mistake" to decide to stay the last time he tried to quit. "The reality is, I think, there was going to be criticism and discourse over this decision."

12:11 pm | by Shira Ovide

"I don't think you can ask executives not to invest their own families' capital," Sokol said. The only other option would have been to not mention the Lubrizol investment to Buffett at all, which would have been shortchanging them.

12:11 pm | by Shira Ovide

Sokol signs off by wishing happy birthday to "Lucy," one of his grandchildren.

In a Gordon Gekko moment, a key Berkshire Hathaway executive, David Sokol, has resigned. Sokol says it is for personal reasons. But in Warren Buffett’s remarkable letter about Sokol, It seems the Oracle had no desire for a drawn out Hewlett Packard/Mark Hurd-like saga.

Yet this story is likely just beginning and may taint the Oracle himself.

The headline is that Sokol bought and sold shares of Lubrizol around the same time he was trying to convince Buffett to buy the chemicals company! Why does this need an exclamation point? Because that is not good at all. At all.

Here is the chronology we know: On Dec. 13, Sokol met with Citigroup and said he was interested in meeting with Lubrizol about a possible deal. The next day Sokol bought Lubrizol stock. On Dec. 17, Citi called the CEO of Lubrizol and communicated Sokol’s meeting request. The CEO just said he would tell the board. It is not clear what, if anything, Sokol was told at that time, but he sold his shares on Dec. 21.

On Jan. 5th, 6th, and 7th, Sokol again bought shares at a price 30% below what Berkshire would ultimately bid for the company. We will come back to Sokol’s likely legal exposure in a moment.

What is more remarkable is Buffett’s response. In short, it looks like he blew it. He seems to defend the transactions because Sokol bought the shares before Buffett knew about the transaction. Buffett claims the purchases were not “in any way unlawful.”

But at a company that prides itself on governance, it looks like he missed an important step. When learning of the facts on March 19, he should have immediately recommended that Berkshire Audit Committee immediately investigate.  Here is a direct quote from Berkshire’s Code of Business Conduct and Ethics:

“All directors and executive officers of the Company, and the chief executive officers and chief financial officers of Berkshire Hathaway’s subsidiaries, shall disclose any material transaction or relationship that reasonably could be expected to give rise to such a conflict to the Chairman of the Company’s Audit Committee. No action may be taken with respect to such transaction or party unless and until such action has been approved by the Audit Committee.”

Buffett’s statement on Sokol’s Lubrizol holdings does not indicate how or whether the breach was reported to the audit committee, or whether it was referred to law enforcement. But Buffett expresses his opinion on the legality of the actions which seems inappropriate and is, in all likelihood, wrong.

Although it appears Sokol did not yet have nonpublic financial information about Lubrizol when he traded – nor did he know how Lubrizol’s board would respond to his request —  that is only a part of the analysis.

As a senior executive of Berkshire, and a person who clearly had decision-making responsibility, he had inside information about Berkshire’s interest. It makes no difference that Buffett says he was unaware of a possible Lubrizol transaction and that any transaction required Buffett’s sign-off.

The law prohibits Sokol from trading in Lubrizol shares based upon material non-public information. Material means: Would a reasonable investor want to know the information before trading in the stock? The mere fact that a senior person such as Sokol had targeted Lubrizol as an acquisition candidate is material: I certainly would want to know Sokol was reaching out before deciding to sell any shares I owned. That further approvals (like board action) are necessary does not make it immaterial. The cases are clear on that.

And by reason of his position, Sokol had a duty to Berkshire to keep the information—Berkshire’s interest in Lubrizol—confidential.

Those are the primary elements of a violation of the insider trading rule.  It is true that Berkshire could have lawfully traded in Lubrizol stock as long as it did not have any material information from Lubrizol or its representatives. It does not follow that officers and employees of Berkshire can do so, however. And that issue is well known.

Here is what Berkshire’s Code of Conduct has to say on this issue:

“Covered Parties who have access to confidential information are not permitted to use or share that information for stock trading purposes or for any other purpose except the conduct of the Company’s business.”

Expect multiple investigations here. And they will start fast. The SEC is likely to investigate as will, I expect, the U.S. Attorney’s Office to determine if any potential crime has been committed. The Berkshire Audit Committee will certainly move into high gear if it hasn’t already. And if Buffett did not report his knowledge promptly, expect him to be a subject of the investigation. Starting tomorrow morning, there will be lawsuits from the plaintiffs’ bar suing on behalf of Berkshire’s and probably Lubrizol’s shareholders.

This is not a minor manner. I believe this could do substantial damage to the legendary Buffett brand, particularly if it turns out Buffett waited 10 days to reveal this information.

(Note: the author owns shares of Berkshire Hathaway.)

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Ronald Barusch spent more than 30 years as an M&A practitioner at Skadden, Arps, Slate, Meagher & Flom LLP before retiring last year. He is no longer affiliated with the firm and the views expressed here are his own.

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