Buffett's almost heir, David Sokol, defends himself

By Julianne Pepitone, staff reporter


NEW YORK (CNNMoney) -- David Sokol, once regarded as the heir apparent to Warren Buffett, denied allegations of wrongdoing as he resigned as chairman of several Berkshire Hathaway subsidiaries.

"I don't believe I did anything wrong," Sokol told CNBC on Thursday.

david_sokol.03.jpg
David Sokol

He also said that he did not have any control over Berkshire's decisions to merge with other companies and he did not consider his investments to be insider trading.

Buffett's press release about the resignation came Wednesday in the form of an unusually candid letter in which he said Sokol's resignation was "a total surprise."

Sokol told CNBC on Thursday that working for his "mentor" Buffett was "one of the best experiences of my life," but that he wanted to invest his family's money and "build a mini-Berkshire, if you will."

"I'd like to do what [Buffett] did in 1965: invest my own money," he said.

Buffett revealed that Sokol pushed him in January to buy chemical company Lubrizol. Though Buffett said he was "skeptical" at first, Berkshire purchased Lubrizol (LZ, Fortune 500) earlier this month for $9.7 billion -- one of the largest acquisitions in the company's history.

After Berkshire announced plans on March 14 to buy Lubrizol, Buffett said he found out that Sokol had bought 2,300 shares of Lubrizol on Dec. 14 -- which he then sold on Dec. 21.

Then, on Jan. 5, 6 and 7, Sokol bought 96,060 Lubrizol shares pursuant to a 100,000-share order he had placed, with a $104 per share limit price.

"Dave's purchases were made before he had discussed Lubrizol with me and with no knowledge of how I might react to his idea. In addition, of course, he did not know what Lubrizol's reaction would be if I developed an interest," Buffett wrote in the release.

Buffett also noted that Sokol had no voice in Berkshire's decision after he suggested the Lubrizol buy.

"Neither Dave nor I feel his Lubrizol purchases were in any way unlawful," Buffett wrote. "He has told me that they were not a factor in his decision to resign."

But Meyer Shields, a director at financial services company Stifel Nicolaus, said even the appearance of impropriety may hit Berkshire's valuation.

"Berkshire has spent a lot of time and energy on asserting their integrity," he said. "While I'm not saying Sokol did anything wrong, even a question related to ethics is a big blow."

In 2009, Buffett handpicked Sokol to turn around the failing Berkshire subsidiary NetJets, a private jet operator. At first, Sokol got flak from internal NetJets managers for deep layoffs. But within a few months, he reduced the company's debt from $1.9 billion to $1.3 billion. He also cut about $100 million in costs, enough to make the operation profitable.

The impressive turnaround led many to believe that Sokol would take the reins when Buffett stepped down from Berkshire.

But Buffett disclosed that Sokol had discussed resigning twice before -- most recently "two or so years ago."

Buffett said Sokol's assistant delivered a letter of resignation on Monday. Sokol's letter said, in part, that he wants to "utilize the time remaining in my career to invest my family's resources ... and ... provide opportunity for my descendents and funding for my philanthropic interests."

Shields of Stifel Nicolaus noted that many in Berkshire's top management have worked loyally for Buffett for years, and when he's gone, they may see little reason to stay.

"If [Buffett's] departure sets off a domino effect, Berkshire is vulnerable," he said. "These people are invaluable and not immediately replaceable."

Buffett's letter touted Sokol's turnaround work at the Berkshire subsidiaries MidAmerican and Johns Manville.

Buffett closed his letter by saying he did not attempt to talk Sokol out of resigning, and that he has "held back nothing in this statement. Therefore, if questioned about this matter in the future, I will simply refer the questioner back to this release."

Editor's note: An earlier version of this story incorrectly stated that Berkshire Hathaway bought Lubrizol on March 14. Berkshire announced plans to buy Lubrizol on March 14.

-- CNNMoney staff writer Aaron Smith contributed to this story. To top of page

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