THE BLOG

Warren Buffett as Market Manipulator -- Impossible?

07/28/2014 09:33 pm ET | Updated Sep 27, 2014
  • Raymond J. Learsy Author, 'Ruminations on the Distortion of Oil Prices and Crony Capitalism'
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Warren Buffett the very icon and dean of the America's trust in the stock market and our economic process whose example has been a beacon of achievement and trust in the system. Is it possible that even Warren Buffett has clay feet, stooping to the very actions whose cynicism and manipulative enterprise has made many so wary of a structure that rewards the few at the cost of the many?

I don't know, but an extraordinary set of circumstances have come to pass in the past few days of stark stock trading, coincidences that cannot but leave one wondering whether willful manipulation was at play.

Buffett is sitting on a gain today from his investment in The Dow Chemical Company (NYSE: DOW) when he came in with $3 billion to assist Dow to acquire Rohm & Haas for $18.8 billion in 2009. He effectively became the single largest shareholder in the larger Dow Chemical Company after acquiring 3,000,000 shares of Series A Cumulative Convertible Perpetual Preferred Stock in Dow Chemical Company. Under certain conditions, each preferred share is convertible into 24.201 shares of Dow common stock, but the preferred share comes with dividends at a rate of 8.5 percent per year. Beginning in April 2014, if Dow's common stock price exceeds $53.72 then Dow can elect to convert the Dow preferred shares into common stock if its shares traded above $53.72 for any 20 trading days in a consecutive 30-day window

An interest rate of 8.5% today is an extraordinary bonanza and clearly an enormous burden for Dow Chemical. Chairman and Chief Executive Officer Andrew Liveris has been seeking to reduce the company's debt. But a strange thing happened over the past few trading days in Dow stock's price action, most specifically on July 25th and 28th. Remember, according to the agreement with Buffett. Dow has the right to convert the preferred shares into common stock if shares traded above $53.72 for any 20 trading days in a consecutive 30 day window. Well, and here's the rub, after trading significantly higher on both days ranging up to $54.15/share the stock collapsed each day in the final hour with the heaviest trading of the day, to end at $53.70 in Monday's (the 28th) trading and $53.71 on Friday the 25th, conveniently shading the $53.72 unlock price.

Coincidence, perhaps or perhaps not. And if not, then a brazen manipulation of a stock price to the benefit of Mr. Buffett and his interests. Certainly he has the wherewithal to move the stock in any way he chooses but is that the way the game should be played by the Babe Ruth of the stock trading game, and if so what does that tell us about the game!?