Sokol’s Stock Trading Controversy Heats Up

A report released yesterday to the board of Berkshire Hathaway reveals that former executive David Sokol breached the company’s insider trading rules and code of ethics when he purchased shares in Lubrizol Corp before advising chairman Warren Buffett to buy the chemical manufacturer. 

According to the Berkshire audit report, the former chairman and CEO of NetJets might face legal action from the company to recover the damages it incurred, as well as the $3 million in profits Sokol reaped from the Lubrizol trades. 

‘His purchases of Lubrizol shares while serving as a representative of Berkshire Hathaway in connection with a possible business combination with Lubrizol violated company policies, including Berkshire Hathaway’s code of business conduct and ethics, its insider-trading policies and procedures,’ says the audit committee in the report. 

‘His misleadingly incomplete disclosures to Berkshire Hathaway senior management concerning those purchases violated the duty of candor he owed the company,’ the report continues.

As Corporate Secretary previously reported, Sokol bought $10 million worth of shares in Lubrizol, the company that Berkshire was buying. However, Sokol reportedly picked the company from a list presented to him by Citigroup and asked Citigroup to convey Berkshire’s interest to James Hambrick, Lubrizol’s chairman, more than a week before Sokol made his significant personal investment in the chemicals company.

Greggory Warren, CFA and a senior stock analyst with global research firm Morningstar, writes, ‘Even if Buffett is able to deflect a handful of questions about the Sokol affair at the annual meeting later this week, he (and the board) will not be able to ignore the clamor that has arisen about succession planning at Berkshire.’ 

Sokol, once considered to be a possible successor to Buffett, resigned last month as the smoke billowed around his controversial Lubrizol trading.

To view the report, click here.