SEC won't file insider-trading charges against David Sokol, lawyer says

David Sokol


The Securities and Exchange Commission has decided not to file insider-trading charges against David L. Sokol, a one-time top lieutenant at Omaha-based Berkshire Hathaway, Sokol's lawyer said Thursday.

Sokol came under scrutiny in 2011 after abruptly resigning as chairman of Berkshire's MidAmerican Energy Holdings, one of the many holdings of the investment conglomerate run by the billionaire Warren Buffett.

At the time, Berkshire revealed that Sokol bought shares in Lubrizol, a maker of lubricants that he wanted Buffett to buy. Sokol bought the shares two months before Berkshire announced a $9 billion acquisition of the company. After the deal was announced, the value of his Lubrizol stake rose by $3 million.

Sokol's lawyer, Barry W. Levine, said that the SEC informed his client Thursday that it had decided not to pursue any charges related to the trades.

Levine said he was happy that his client was "exonerated" and that Sokol never acted improperly in the trades. "He is the paragon of rectitude," said Levine, a partner at the law firm Dickstein Shapiro in Washington.

John Nester, an SEC spokesman, declined to comment Thursday. The agency typically does not comment when it decides not to pursue action in the case. The news was first reported online by the Wall Street Journal.

Sokol's resignation in 2011 was a rare black eye for Berkshire. A star manager, Sokol had run several Berkshire subsidiaries, including MidAmerican Energy and NetJets, which sells fractional ownerships of private jets. He was long considered to be a leading candidate to succeed Buffett, 82.

Warren Buffett was surprised by David Sokol's sudden resignation in 2011. THE ASSOCIATED PRESS

His sudden resignation caught Berkshire and Buffett by surprise. Buffett said he did not ask for Sokol's resignation. Initially, it seemed like a personal decision by Sokol.

Buffett initially defended his protege's trading. "Neither Dave nor I feel his Lubrizol purchases were in any way unlawful," Buffett said at the time. "He has told me that they were not a factor in his decision to resign."

But additional information surfaced after the Berkshire board investigated Sokol's trading record. Berkshire directors ultimately accused Sokol of misleading the company about his personal stake in Lubrizol.

Sokol bought $10 million worth of stock in Lubrizol shortly before bringing the company to Buffett's attention, according to the board. It said that Sokol did not tell Buffett that he had bought his stake in Lubrizol after Citigroup bankers had pitched the company as a potential takeover target. He also bought some of the shares, according to the Berkshire directors, after learning that Lubrizol would entertain a takeover offer.

"His misleadingly incomplete disclosures to Berkshire Hathaway senior management concerning those purchases violated the duty of candor he owed the company," the board's report in 2011 says. It adds that Sokol may have failed his fiduciary duty under the law of Delaware, where Berkshire is incorporated.

Buffett later said the trades violated company trading policy and called Sokol's actions "inexplicable and inexcusable."

He also provided testimony to SEC investigators. Berkshire continued to pay Sokol's legal bills. Buffett could not be immediately reached for comment Thursday night.

Later in 2012, SEC lawyers decided that there was insufficient evidence to mount a case against Sokol. The evidence was circumstantial, SEC officials concluded, and it was unclear whether Sokol had a true window into the deal-making process. He also had no indication that Buffett would be interested in acquiring Lubrizol.

Since resigning from Berkshire, Sokol has been managing his own portfolio, Levine said.

The Omaha World-Herald Co. is owned by Berkshire Hathaway Inc.

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