How A German Business May Have Snookered Berkshire Hathaway & Buffett

Within a few weeks after Berkshire Hathaway purchase of what appeared to be a solid German pipe making business, a whistleblower’s tip ended up uncovering fake sales and profit data and hacked computer systems. This according to an article in The New York Times.

“What looked like a profitable German manufacturer of specialized pipes for the oil and gas industry was, in fact, nearly bankrupt,” the article reports.

The acquisition of the company, “Wilhelm Schulz, was described as an “expensive misstep” for Berkshire. The purchase was completed by Berkshire’s recently acquired Precision Castparts—the conglomerate’s biggest acquisition ever ($37 billion) —reportedly as a way to increase its overseas presence.

The article reports that arbitrators investigating the case found that some of the documentation presented by Schulz to lenders “was fabricated by using Photoshop software to create fake invoices and delivery receipts” to make the company look healthy.

The whistleblower, identified in the arbitrator’s report as a former information technology employee at Schulz, sent an email to Berkshire explaining that a small team of his co-workers were entering fake customer orders into the company’s computer system.  Expert testimony in the case concluded that fake transactions inflated the company’s profits by £160 million.

According to the article, the arbitration tribunal has awarded Precision Castparts £643 million in damages—the purchase price minus the estimated value of Wilhelm Schulz of £157 million—but adds that “it’s doubtful whether Precision Castparts will be able to collect the money” due to insolvency issues.