A rare moment of bad press for Buffett

A former employee of a Berkshire Hathaway subsidiary sues the company, claiming its executives fired him in retaliation.

By TheStreet Staff Apr 9, 2010 11:37AM

TheStreetWarren Buffett. Credit: (© Paul White/AP)By Eric Rosenbaum, TheStreet


Berkshire Hathaway (BRK.B) shares have fallen 2% this week, closing below $80 on Wednesday for the first time since February. But that wasn't the bad news for Warren Buffett’s investment company.


This week, a former employee sued Berkshire Hathaway executives, claiming they fired him after he exposed alleged fraud at the company’s recreational vehicle subsidiary, Forest River. The ex-worker, Brad Mart, filed the complaint in US District Court in South Bend, Ind.


A recent Harris Interactive (HPOL) poll said Berkshire Hathaway had the best reputation among 60 major U.S. companies. Mart’s complaint alleges that Forest River Chief Executive Peter Liegl forced the company -- which makes RVs, restroom trailers and pontoon boats -- to buy parts at inflated prices from another company Liegl owned. Mart also accused Forest River executives of using shady accounting to hide payments made to former employees.


Mart contends that Buffett and senior staff dismissed his concerns about fraud at the RV company when he raised the issues to them. Mart says he was fired for his whistle-blowing activities in early 2009.


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Mart's complaint says he helped to arrange Berkshire Hathaway's 2005 deal to buy Forest River for $800 million. Mart was named general manager of the Forest River's financing business after the Berkshire acquisition. He says Berkshire Hathaway executives told him in 2007 that he was in line to succeed Peter Liegl as chief executive officer.


The alleged fraud includes the removal of cash from Forest River factory vending machines for deposits made to Liegl’s personal account, according to the complaint.


Mart claims that Liegl threatened his life. He’s also suing Forest River for breach of contract.


Mart has asked the US District Court for the CEO post he says he was promised, and damages including money he lost when he purchased a new home on the expectation of receiving the CEO post at Forest River.


Berkshire Hathaway denied the allegations in an interview with Bloomberg. Berkshire Hathaway secretary Forrest Krutter told Bloomberg that "Mart did not alert Mr. Buffett to any unethical, fraudulent or illegal activities. My investigation did not identify any fraudulent, unethical or illegal activities." He said there was "no evidence or indication" that any death threats were made. The Berkshire Hathaway executive said Mart was fired for reasons unrelated to his allegations of financial misdeeds by Liegl and Forest River.


Mart claims he told Buffett directly about the Forest River financial shenanigans in six separate phone conversations. The Berkshire Hathaway executive refuted that claim as well, telling Bloomberg that Mart spoke to Buffett three times and never told Buffett about the unethical behavior.


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