When it came to light last month that David Sokol, previously considered Buffett's heir apparent at Berkshire Hathaway, was resigning and had purchased stock in a company before suggesting Berkshire acquire it, Buffett explained that he'd known about Sokol's purchases but didn't think Sokol did anything "unlawful." Well, the company sure changed its tune today.
The Berkshire audit committee has issued a report to the company's board of directors stating that Sokol's stock purchases violated company policies on insider trading and business conduct and ethics, and that Sokol made "misleadingly incomplete disclosures to Berkshire Hathaway senior management" about those purchases. The committee said it's considering legal action against Sokol to recover damages the company has sustained or Sokol's trading profits, and that it would cooperate with any government investigation into whether Sokol engaged in insider trading.
How exactly did Sokol mislead the company, according to Berkshire? The report explains that when Sokol initially suggested that Buffett purchase Lubrizol, a manufacturer of engine lubricants, he said he was familiar with the company because he owned the stock, without disclosing that he bought the shares after consulting with Citigroup investment bankers and asking them to arrange a meeting with Lubrizol's CEO to discuss a possible Berkshire acquisition. Buffett only found out about that part of the story on the day Berkshire purchased Lubrizol:
The report also provides insight into Sokol's edits to Buffett's announcement of Sokol's resignation last month. Apparently, the only line Sokol took issue with was the suggestion that he wanted to be Buffett's successor:
This article is from the archive of our partner The Wire.
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