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Buffett heir apparent quits after stock purchases

New York, March 31, 2011

The man widely seen as the leading successor to Warren Buffett at Berkshire Hathaway has resigned after buying shares in chemical company Lubrizol Corp before pushing Buffett to acquire it.

David Sokol's resignation is a reputational blow for Buffett, the 80-year-old "Oracle of Omaha," who prides himself on his folksy fair-dealing image and handpicks managers who can run businesses in a similarly transparent manner.

"Obviously Warren Buffett prides himself on transparency and this would not appear to be transparent," said Berkshire shareholder Michael Yoshikami of YCMNET Advisors in California. "It's surprising and always amazes me these types of events occur because it just seems so unnecessary."    

While Buffett said he did not think Sokol broke the law, the sequence of events raised questions about conflicts of interest and the strength of Berkshire's internal controls.   

Buffett said on Wednesday that Sokol bought shares of Lubrizol last December, sold them, then bought more shares in early January. He subsequently presented Buffett with the idea of buying the company, with a "passing remark" he owned some Lubrizol stock that Buffett did not probe further.

The 96,060 shares Sokol bought on January 5-7 would have generated a profit for him of at least $2.98 million based on Lubrizol's share price over those three days and the price at which Buffett agreed to buy the company.

It is unclear why news of Sokol's trading is surfacing now, or whether government investigators have looked into the matter. The US Securities and Exchange Commission and the Department of Justice declined to comment.

Sokol defended himself in an interview with Fox Business that ran late Wednesday. "There was no inside information. The only reason Warren Buffett mentioned it in the release is because it would have to be brought up anyway when Berkshire put the purchase up for a vote. It's a disclosure issue," he said.

Buffett took pains in his statement Wednesday to make clear that he did not fire Sokol, and that Sokol offered his resignation after having asked twice before in recent years to retire. Buffett said he discovered the extent of Sokol's Lubrizol holdings on March 19, but insisted the March 28 resignation came as a surprise.

Nonetheless, a recent regulatory filing by Lubrizol makes clear Sokol had the idea of buying Lubrizol well before taking it to Buffett. - Reuters




Tags: Warren Buffett | Berkshire Hathaway | share purchase |

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