In 1999, a lawsuit was filed against MidAmerican Energy when David Sokol was CEO. Last year, a lawsuit was filed against another Berkshire Hathaway company, NetJets. Sokol was in charge of the company at the time.Legal disputes are not evidence of a pattern of anything necessarily, but several lawsuits involving Sokol since he became a member of the Berkshire family, “suggest that management had some warnings about his rules-pushing nature long before his resignation last week for buying stock in a company shortly before Berkshire acquired it,” the New York Times reports.
Sokol suddenly resigned from Berkshire last week amid questions over his purchase of Lubrizol shares before Warren Buffett bought the chemical company for $9 billion. Sokol made almost $3 million from his investment.
A former Smith Barney investment banker, Michael Lissack, worked with Sokol when he headed up a business called Ogden Projects. He told the NYT that Sokol was highly intelligent “but at times wondered about his motivation.”
Lissack said: “There is nothing wrong with being tough. There is something wrong with only looking out for No. 1 when you pretend to be a team player.”
Two of the lawsuits that supposedly could have been warning signs include the 1999 suit against MidAmerican, and the NetJets complaint from November last year.
According to the NYT,
The most serious lawsuit centered on the accounting of an irrigation project by MidAmerican Energy, where Mr. Sokol was chief executive when Berkshire bought it in 1999…[L]ast year the judge ruled in that case that MidAmerican had improperly changed its accounting on the project and criticised Mr. Sokol directly.
The change in accounting was “intended to eliminate the minority shareholders’ interests,” the judge wrote, awarding more than $32 million to the minority shareholders. The case had taken more than five years to work its way through the courts. During that time, Warren E. Buffett… expressed confidence in Mr. Sokol by broadening his portfolio beyond MidAmerican to include Netjets.
That new role then became the subject of more controversy, when the company sued author Alice Schroeder to try and uncover which Berkshire employees had provided her with information for her biography of Buffett, “The Snowball.”
Schroeder told the NYT that the various legal actions would have been “yellow lights: if not danger signals, at least warning signs. Disputes in business are common, but both of these speak to the integrity of the management, not just ordinary business wrangling.”