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The question on a lot of minds after David Sokol left Berkshire Hathaway under the shadow of misconduct was, how will this affect Warren Buffett himself, if at all? That was answered today when the first lawsuit in the case named both Sokol and Buffett (as well as the entire Berkshire Hathaway board) as defendants.

The suit, filed by shareholder Mason Kirby in the Delaware Court of Chancery, "asks the court to disgorge Mr. Sokol’s trading profits in Lubrizol and to award damages because of the damage done to Berkshire’s goodwill," according to the New York Times. Lubrizol, you'll recall, was the company Sokol invested in personally before bringing to Buffett's attention. Sokol hasn't been charged with any crimes, but he has quit in disgrace and the Securities and Exchange Commission is investigating him.

Berkshire's goodwill has been the subject of much hand-wringing in the weeks since Sokol's actions came to light. Buffet's capital exists as much in his reputation as his investment portfolio. The so-called Oracle of Omaha can not only lift a company's stock by investing in it, he can lift a whole industry. A lawsuit (perhaps the first of many) that attacks his goodwill may do real damage.

But at least one commenter says that's nonsense. The flap is over Sokol, insists Jon C. Ogg on 24/7 Wall St., and Buffett has enough goodwill in the bank to weather it.

First and foremost, David Sokol is the real issue here.  Warren Buffett obviously doesn’t seem to police such matters, and chances are that this hands-off monitoring will not be tru ahead.  The odds are likely slim to none that Buffett said “David, go ahead and load up on this ‘as a great investment for your family’ and I will acquire the company so you can have a great pay-day....”

Unless it surfaces that the next closest thing to front-running has been standard and encouraged procedure at Berkshire Hathaway, Buffett and Berkshire both have a history here that will be protected.  Buffett is probably going to stay a bit out of the media for a while until this blows over, but again this is on Sokol and Buffett can claim he did not know.

But Sokol had been seen as a protege of Buffett's to take over Berkshire Hathaway, which means the 80-year-old investor saw him as a quality choice and he turned out not to be. It may well turn out that Buffett escapes any tarnish of bending the rules himself, but that won't erase a misjudgment on character.

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