Berkshire Heir Apparent Thrown Firmly Under the Bus

Things seem to be going from bad to worse for the former Berkshire Hathaway executive embroiled in an alleged improper trading scandal. In summary, one of the insiders on the short list to be Warren Buffett's replacement has been accused of trading heavily in a potential investment opportunity before bringing the idea to the Berkshire board, then misleading Mr. Buffett about his stake. While the SEC is merely investigating the situation, David Sokol has resigned in response to the allegations. Meanwhile, Berkshire Hathaway seems to think that the term 'allegation' is not quite strong enough. From the Reuters article:

'His misleadingly incomplete disclosures to Berkshire Hathaway senior management concerning those purchases violated the duty of candor he owed to the company,' the board said -- noting that an executive's duty of candor was part of the duty of loyalty under Delaware law where Berkshire is incorporated. Berkshire's board also said certain answers Sokol gave to Buffett in response to questions about the nature of his holdings appeared 'intended to deceive.'



The Reuters article continues:

Berkshire attorney Ron Olson said Sokol was interviewed at least three times regarding his Lubrizol trading and contacts with Citigroup Inc bankers. 'In connection with the preparation of the audit committee report, a request for a further interview with Mr. Sokol was made to his attorney. Mr. Sokol was not made available,' Olson said in the statement.

It should be noted that Berkshire's annual meeting is taking place this weekend, making the timing of these statements at least curious. However, it stands to reason that the famously loyal Buffett would not go so far to discredit a former member of his inner circle merely for public relations purposes. Nor would the company be likely to go so far with comments unless it felt that Sokol's actions were indefensible. Questions related to the timing of Berkshire's response notwithstanding, one thing is for sure; this isn't the last we have heard of this case.