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Buffett's Berkshire says Sokol deceived, broke law

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NEW YORK (Reuters)—Former Berkshire Hathaway Inc. executive David Sokol intended to deceive the company in the way he disclosed his interest in Lubrizol Corp. and violated Delaware law in the way he behaved, the company's audit committee concluded in a scathing report.

The report, released by Berkshire just three days before its annual meeting, leaves Mr. Sokol open to civil proceedings, a move Berkshire's board said it was considering.

Berkshire CEO Warren Buffett announced Mr. Sokol's resignation in March, noting that Mr. Sokol bought shares in Lubrizol before suggesting to Mr. Buffett that Berkshire buy the company. Mr. Buffett said he only later found out that Mr. Sokol held nearly 100,000 Lubrizol shares worth about $10 million.

Mr. Sokol made a profit of about $3 million on the stock—a profit that could be at risk. The Berkshire board said it was still considering legal action against Mr. Sokol to, among other things, recover any trading profits he made.

"It hardly sounds like Berkshire is trying to circle the wagons to protect Sokol," said Francis Pileggi, a partner at Fox Rothschild L.P. in Wilmington, Del. "If I had my druthers, I would rather be representing Berkshire in this matter than Sokol in a Delaware court."

Efforts to reach Mr. Sokol were not immediately successful.

The board also said it would cooperate with any government investigation. A spokesman for the Securities and Exchange Commission declined to comment.

When Mr. Buffett announced Mr. Sokol's resignation in March, he said he believed Mr. Sokol had not done anything unlawful. The statement Wednesday seemed to suggest otherwise.

"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 the law in Delaware, where Berkshire is incorporated.

Berkshire's board also said certain answers Mr. Sokol gave to Mr. Buffett in response to questions about the nature of his holdings appeared "intended to deceive."

Mr. Sokol, who used to run Berkshire subsidiaries MidAmerican and NetJets, was widely seen as Mr. Buffett's heir apparent, an image Mr. Buffett biographers say he cultivated.

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