Berkshire's CEO Warren Buffett said during the annual meeting of the Berkshire Hathaway that former Berkshire executive David Sokol had violated the ethics of the company and insider trading policies.
Buffett reassured the investors that the company is strong enough to withstand the scandal and also the insurance losses of around $1.7 billion that could have brought the profit down 58 percent.
Buffet was addressing the 40,000 investors assembled at the Omaha convention center Saturday.
Buffett accuses Sokol
During his address, Buffet said that he could never understand the reason behind Sokol buying stock in Lubrizol when he has recommended shortly before that Berkshire should buy the chemical company.
Buffet said that he came to know about the association between investment bankers and Sokol only after the deal was finalized and made public..
Buffett said that he had no reason to think that Sokol might have brought stock recently in the company and that is why he did not further inquire about his stock in Lubrizol.
He added, “It’s a situation that’s sad for Berkshire and sad for Dave.”
Sokol has denied any misconduct and his lawyer also issued a separate statement Saturday regarding the comments made by Buffet about his client.
The statement said, “David Sokol is deeply saddened that Mr. Buffet, whom he considered a friend and mentor, would disparage him as he has done today.”
Berkshire not to be affected
Buffet predicted fall in earnings of the company ahead of the formal release of the figures Friday.
He said the biggest reason in the drop in profit is because of the losses suffered due to the earthquake and tsunami in Japan, floods in Australia and the earthquake in New Zealand.
Buffet said, “We had probably the second-worst quarter for the insurance industry in terms of disasters around the globe.”
Buffet and Charlie Munger, vice president, Berkshire spent nearly six hours answering the questions posed by the investors.
One question which received support in form of mild applause from the investors asked why Buffet was not tough with Sokol as he has always promised to be ruthless with people who hurt the reputation of Berkshire.
Buffet replied that he did not have all the information about Sokol when he announced his resignation in March.
Buffet said that he came to know about the association between investment bankers and Sokol only after the deal was finalized and made public.
Berkshire has about 80 subsidiaries which include furniture, jewelery and clothing firms but its insurance and utility business that account for more than half of the income of the company.