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Ex-Forest River Inc. Executive Suing Buffett’s Co.

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April 9, 2010 by   Leave a Comment

Warren Buffett

Warren Buffett

Berkshire Hathaway Inc. was sued by an ex-manager of its recreational vehicle business who said he was fired after bringing allegations of “millions of dollars” of fraud to executives, including Chairman Warren Buffett, according to Business Week.

Pete Liegl

Pete Liegl

Brad Mart said in an April 5 complaint that Buffett “took no action to correct the deficiencies” at the RV maker, including the removal of cash from factory vending machines for deposit in a personal account of Forest River CEO Peter Liegl. A representative for Berkshire said Mart never told Buffett, in three conversations, about unethical behavior, and that a company probe found no illegal activity.

Mart is seeking the Forest River CEO post, which he said he was promised, according to the complaint in federal court in South Bend, Ind. He also asked for damages including reimbursement for his loss on the sale of his home in Illinois when he purchased a new property in anticipation of getting the promotion. He accused Elkhart, Ind.-based Forest River Inc. of breach of contract and said Liegl threatened his life.

“Because Mart followed the Berkshire Hathaway Code of Business Conduct and Ethics and reported known or suspected violations of the code by Liegl and Forest River to Warren Buffett, Mart lost his job,” according to the complaint. Liegl “fared much better, retaining his position as CEO of Forest River and keeping the millions of dollars he bilked.”

2005 Deal

Mart was fired early last year after helping to arrange Berkshire’s 2005 deal to buy Forest River for about $800 million according to the complaint. Mart said that he was named general manager of the company’s financing business after it was bought by Berkshire and then told in 2007 he would succeed Liegl as CEO. Mart said he reported violations to Buffett in six separate phone conversations.

“Mr. Mart did not alert Mr. Buffett to any unethical, fraudulent or illegal activities” at Forest River, said Berkshire Secretary Forrest Krutter in an interview. Krutter said Buffett asked him to conduct a review of RV maker related to “business items.” “In the course of the investigation, these allegations came to light,” Krutter said of the fraud claims. “My investigation did not identify any fraudulent, unethical or illegal activities.” Krutter said he’s seen “no evidence or indication” that the allegations of death threats are valid, and that the reasons for Mart’s dismissal aren’t related to his claims.

Business Ethics

Berkshire’s code says the company will “uphold the highest level of business ethics” and that retaliation is prohibited against employees who report violations in good faith. Buffett told Congress in 1991 that he had given employees of Salomon Inc. a message after a bond scandal: “Lose money for the firm and I will be understanding; lose a shred of reputation for the firm, and I will be ruthless.”

Mart said that Liegl required Forest River to buy parts, at inflated prices, from a company he owned and demanded that the RV maker’s staff use his airline-charter service for business travel. Liegl’s conduct also included “appropriating hundreds of thousands of dollars in cash from factory vending machines,” according to the complaint.

Liegl also used “ghost payrolling” so that former employees could receive salary or benefits from Forest River in a “fraud upon Berkshire Hathaway’s shareholders,” according to the complaint. Buffett oversees a collection of more than a 70 companies from Berkshire’s Omaha, Nebraska, headquarters with a staff of about 20 people. Berkshire’s subsidiaries include insurers, shoe manufacturers and power producers. He seeks companies with strong management and entices business-owners to sell their firms by promising not to interfere in day-to-day operations.

‘A Remarkable Entrepreneur’

Mart said he introduced Buffett and Liegl. According to Buffett’s annual letter to Berkshire shareholders published in 2006, Liegl previously sold Forest River to a leveraged- buyout firm and subsequently quit the firm because of a disagreement on strategy. Forest River then went bankrupt and Liegl repurchased it, Buffett said. “Pete is a remarkable entrepreneur,” Buffett said in the letter. “You can be sure I won’t be telling Pete how to manage his operation.”

Forest River has about 5,355 employees, according to Berkshire’s 2009 annual report. The unit sells restroom trailers and pontoon boats in addition to RVs, according to the company’s website.

Angelica Schultis, a lawyer for Mart, declined to comment.

RVBUSINESS.com reported in October 2008 that Mart had been named president of Forest River. “Brad is a very competent manager,” Liegl said. “Making this move, we can maintain doing what we are doing.”

Liegl told RVBusiness that he will, in turn, focus on acquisitions. “The times are right to be aggressive in this area,” Liegl said. “There are some people struggling out there. It hasn’t been the greatest of times for everybody in the RV business, but, by the same token, it hasn’t been the worst for everybody, either.”

The announcement of Mart’s promoton came in a company memo dated Oct. 1, 2008.

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