Former Berkshire Hathaway executive David Sokol deliberately misled Warren Buffett when pitching an investment to him, the company’s board concluded in a scathing report that may add fuel to a pending US Securities and Exchange Commission (SEC) probe of Buffett’s one-time heir apparent.
The board said it could sue Sokol to recover the US$3 million of trading profit he made when Berkshire bought chemicals company Lubrizol Corp and seek damages from him for harm to the company’s reputation. The company said it will cooperate with any government probe into the matter.
The SEC is probing Sokol, a person familiar with the matter said on Wednesday.
Sokol’s high-profile attorney disputed the board’s report and said his client is “a man of uncommon rectitude and probity.”
“I have known Mr Sokol and have represented his companies in business litigation since the mid-1980s,” said Barry Levine of the Washington firm Dickstein Shapiro. “He would not, and did not, trade improperly, nor did he violate any fair reading of the Berkshire Hathaway policies.”
Levine said in a statement late on Wednesday that Sokol had been studying Lubrizol for personal investment since the summer of last year and such investments are specifically allowed by his employment agreement.
“Buffett was told twice, not once, about Sokol’s ownership of Lubrizol stock before Buffett engaged in any discussions with Lubrizol,” Levine said.
The report is an unusual statement from a board that has historically been very close to Buffett, who is chief executive and chairman. It may begin to answer the demands of shareholders who expected Buffett to address the -controversy at the company’s annual meeting in Omaha, Nebraska, this weekend.
Buffett announced Sokol’s resignation last month, noting that Sokol bought shares in Lubrizol before suggesting to Buffett that Berkshire buy the company. While Sokol mentioned to Buffett in “passing” that he held some Lubrizol stock, Buffett said he only later found out that Sokol held nearly 100,000 Lubrizol shares worth about US$10 million.
Sokol made a profit of about US$3 million on the deal — a gain that could be at risk.
Legal experts said Sokol appears to be in more trouble now than was first thought.
“I think Mr Sokol has a real problem here,” Duke University Law Professor James Cox said. “This is not a close call at all.”
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