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UPDATE: Berkshire Finds David Sokol’s Conduct Violated Company Policies

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UPDATE: Berkshire Hathaway finds former executive David Sokol violated company policies in purchasing shares of Lubrizol. The full report can be found on Berkshire's website.

Here's the highlight:

"His purchases of Lubrizol shares while serving as a representative of Berkshire Hathaway in connection with a possible business combination with Lubrizol violated company policies, including Berkshire Hathaway's Code of Business Conduct and Ethics and its Insider Trading Policies and Procedures.

His misleadingly incomplete disclosures to Berkshire Hathaway senior management concerning those purchases violated the duty of candor he owed the Company."

It's that time of year again--time for the "Woodstock of Capitalism," the annual Berkshire Hathaway shareholder meeting in which tens of thousands of Warren Buffett fans descend on Omaha to see the Oracle in person.

This year, there will be an elephant in the room: The recent resignation of Buffett's heir apparent, David Sokol, after what struck many observers as unethical trading in the stock of a company called Lubrizol that Berkshire subsequently bought.

The trading by Sokol was clearly unethical, says investment manager Jeff Matthews, the author of "Secrets in Plain Sight: Business and Investing Secrets of Warren Buffett," and the writer of the blog Jeff Matthews Is Not Making This Up.

And the problem for Buffett, Matthews says, is the bizarre way Buffett explained away the issue in a press release announcing Sokol's departure. In this release, Buffett said that Sokol's buying a huge stake in Lubrizol before he recommended that Buffett buy it was not "unlawful."

As Matthews observes, Buffett's standard for business ethics, for which he is revered, doesn't mean "not doing things that are illegal." It means doing the right thing--in all circumstances. So for Buffett to give Sokol a pass by saying the trade wasn't illegal was startling and disappointing.

Matthews thinks Buffett needs to address this issue in detail at the shareholder meeting this weekend. He also thinks Buffett should be very straight about it: Explain how it happened and how he learned about it, admit that it was unethical, and explain how Berkshire has now changed its policies so something like that will never happen again.

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