Sokol Violated Berkshire Insider-Trading Rules, Audit Finds
Former Chairman of Mid American Energy Holdings David Sokol
Brendan Hoffman/Bloomberg
David Sokol, seen here as chairman of Mid American Energy Holdings Co. in Washington, D.C., on June 9, 2009.
David Sokol, seen here as chairman of Mid American Energy Holdings Co. in Washington, D.C., on June 9, 2009. Photographer: Brendan Hoffman/Bloomberg
April 28 (Bloomberg) -- David Sokol violated Berkshire Hathaway Inc.’s insider-trading rules and misled the company about his personal stake in Lubrizol Corp., which he recommended as a takeover target to Chairman Warren Buffett, the firm said. An 18-page report released yesterday by Berkshire’s audit committee portrayed Buffett as a victim of deception and said the company should weigh suing Sokol, 54, to recover his trading profits. Bloomberg's Jon Erlichman reports. (Source: Bloomberg)
April 28 (Bloomberg) -- Alice Schroeder, a Bloomberg News columnist and author of "The Snowball: Warren Buffett and the Business of Life," discusses Berkshire Hathaway Inc.'s investigation of former Berkshire manager David Sokol's purchase of Lubrizol Corp. shares before recommending the company as a takeover target to Chairman Warren Buffett. The audit committee, in an 18-page report released yesterday, accused Sokol of violating company standards by misleading Berkshire about his personal stake in Lubrizol. Schroeder talks with Betty Liu on Bloomberg Television's "In the Loop." (Source: Bloomberg)
April 14 (Bloomberg) -- Roger Altman, founder and chairman of Evercore Partners Inc. and former deputy Treasury secretary under President Bill Clinton, talks about the U.S. budget debate and the outlook for an extension of the debt ceiling. Altman, speaking with Betty Liu on Bloomberg Television's "In the Loop," also discusses NYSE Euronext's rejection of a takeover offer by Nasdaq OMX Group Inc. and IntercontinentalExchange Inc. and the state of the labor market. (Source: Bloomberg)
David Sokol
Jonathan Fickies/Bloomberg
David Sokol, former executive of Berkshire Hathaway Inc., speaks during an interview in New York on Aug. 16, 2010.
David Sokol, former executive of Berkshire Hathaway Inc., speaks during an interview in New York on Aug. 16, 2010. Photographer: Jonathan Fickies/Bloomberg
Berkshire Hathaway Chairman and CEO Warren Buffett
Pankaj Nangia/Bloomberg
Berkshire Hathaway Chairman and CEO Warren Buffett.
Berkshire Hathaway Chairman and CEO Warren Buffett. Photographer: Pankaj Nangia/Bloomberg
David Sokol violated Berkshire Hathaway Inc. (BRK/A)’s insider-trading rules and misled the company about his personal stake in Lubrizol Corp. (LZ), which he recommended as a takeover target to Chairman Warren Buffett, the firm said.
Berkshire will cooperate with any government investigations related to Sokol’s Lubrizol transactions and weigh suing the former manager to recover his trading profits, according to a report from Omaha, Nebraska-based Berkshire’s audit committee.
Sokol’s purchase of about $10 million in Lubrizol stock while facilitating Buffett’s deal to buy the lubricant maker “violated company policies, including Berkshire Hathaway’s Code of Business Conduct and Ethics and its insider-trading policies and procedures,” according to the report.
Buffett, 80, is facing questions about his oversight of managers and criticism for not condemning the stock trading that preceded Sokol’s resignation from Berkshire. Buffett had said March 30 in announcing Sokol’s departure that he didn’t believe the trades were unlawful.
“They’re throwing Sokol under the bus,” said Stephen Bainbridge, a professor at the UCLA School of Law who has written and taught about corporate governance.
Sokol, 54, told Buffett in January he had a stake in Lubrizol, which the billionaire chairman took to mean that Sokol had been following the company as a shareholder and then deemed it a takeover candidate, the audit committee found. Buffett didn’t realize until March 14, when the $9 billion deal was announced, that investment bankers at Citigroup Inc. had brought Wickliffe, Ohio-based Lubrizol to Sokol’s attention as a potential target, according to the report.
‘Misleadingly Incomplete’
Sokol’s “misleadingly incomplete disclosures to Berkshire Hathaway senior management concerning those purchases violated the duty of candor he owed the company,” according to the report.
Buffett learned of Citigroup’s role introducing Sokol to Lubrizol only when a representative from the bank called to congratulate him on the deal, according to the report. Sokol told CNBC last month that he did nothing wrong. Attempts to reach Sokol for comment weren’t immediately successful.
‘Gloves are Off’
“The gloves are off,” said Michael Yoshikami, chief investment strategist at Berkshire shareholder YCMNet Advisors. Buffett’s “response was benevolent, and now the audit committee is coming back and saying, ‘You might be benevolent but, as a protector of the values of the firm, we don’t think benevolence is appropriate.’”
Sokol joined Berkshire in 2000 when he sold MidAmerican Energy Holdings Co., which he led, to Buffett for about $9 billion. Under Berkshire, Sokol retained a minority equity stake in MidAmerican and expanded the unit by buying a natural gas pipeline and power producers in California and the U.K.
Buffett had sent Sokol to China to scout an investment in carmaker BYD Co. and tasked the executive with the turnaround of NetJets Inc., Berkshire’s luxury-flight unit. Buffett biographer Andrew Kilpatrick had said Sokol was the most likely candidate to replace the billionaire as chief executive officer.
Sokol told Buffett before the March 30 statement that he hadn’t hoped to become CEO, according to the report. Sokol made the statement when given an opportunity to review a draft of Buffett’s comments for accuracy.
Statement Revised
The draft had a passage, which Buffett excluded from the eventual report, “that implied that Mr. Sokol had resigned because he must have known the Lubrizol trades would likely hurt his chances of being Mr. Buffett’s successor,” according to the report.
Buffett said March 14 he would pay $135 a share for Lubrizol, compared with the closing price of $105.44 on the New York Stock Exchange in the last trading day before the announcement. Sokol’s investment may have given him a profit of about $3 million, according to Buffett’s disclosure and data compiled by Bloomberg.
To contact the reporter on this story: Andrew Frye in New York at afrye@bloomberg.net
To contact the editor responsible for this story: Dan Kraut at dkraut2@bloomberg.net
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