David Sokol, top manager of Berkshire Hathaway Inc., chairman of several
Berkshire subsidiaries, and CEO of Columbus-based NetJets, Inc., resigned
abruptly on Wednesday amidst concerns over his purchase of stock in a
company which he later proposed as a takeover for Berkshire. ("Sokol
Denies Wrongdoing in Stock Purchases of Berkshire Target," Bloomberg,
March 31, 2011).
As reported in the article, Sokol purchased 96,000 shares of Lubrizol
Corp. in January, less than two weeks before recommending the company
as a takeover target for Berkshire. Warren Buffett, chairman and CEO of
Berkshire Hathaway, said in an announcement that Sokol did tell him that
he was a shareholder in Lubrizol when the two discussed the possibility
of acquisition, but that the comment was "a passing remark and I
did not ask him about the date of his purchase or the extent of his holdings."
Berkshire Hathaway announced the acquisition of Lubrizol in early March
("David Sokol Leaves Berskhire, Buffett," MarketNewsVideo.com,
March 31, 2011). According to Buffett, he was unaware of the size and
the dates of Sokol's Lubrizol purchase until later that month.
After the acquisition announcement, Lubrizol stock jumped up about 30
percent, which would mean the 96,000 shares of stock purchased by Sokol
on Jan. 7 (worth $9.92 million of at the time of purchase) were worth
$12.9 million two months later (Bloomberg). Sokol denied wrongdoing in
a televised interview with CNBC but admitted that his actions could look
inappropriate to the public. "That's why we made it public," he said.
The SEC is currently reviewing Buffett's statement on the purchases
and the acquisition itself. No charges have been filed as of this writing,
but an investigation is likely.
Prior to his resignation, Sokol was widely considered the top candidate
to be Buffett's replacement as chairman and CEO of Berkshire Hathaway,
Inc. Buffett said in an announcement that he was surprised by Sokol's
resignation and that he had not asked for it.