SEC mulls investigating Sokol

SEC is weighing whether to formally investigate Sokols purchases of stock in the company.

Former Berkshire Hathaway executive David Sokols trading in Lubrizol shares as he pitched the company to Warren Buffett is a blurring of personal and professional profit-seeking that could attract a hard look from regulators.

Sokol said he thought he did nothing illegal when,as a top lieutenant of Buffett,he bought shares of a company while orchestrating Berkshire Hathaways acquisition of it. Buffett agrees.

But neither is the ultimate arbiter. The Securities and Exchange Commission is weighing whether to formally investigate Sokols purchases of stock in the company,Lubrizol,according to a person briefed on the matter who was not authorised to speak publicly.

Securities lawyers say rules surrounding insider trading are murky,making it difficult to handicap whether Sokol could face legal liability.

The decision whether to bring a case against Sokol will turn on a close analysis of the facts, said Richard Scheff,a lawyer at Montgomery,McCracken,Walker amp; Rhoads. It will also turn on his state of mind as to why he was trading in Lubrizol when he was.

A spokesman for the SEC declined to comment. Sokol did not return requests for comment.

Sokol presented a steadfast defence on Thursday.

He spent more than 30 minutes on CNBC to say he had no inside information,did nothing unlawful or unethical,and his resignation had nothing to do with his trading.

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I didnt know anything others dont know, Sokol said. Some experts,however,say he did know that he was pushing the Oracle of Omaha to buy a company he had a personal stake in something that could cause the shares to skyrocket if it leaked to the public.

Also,he may have had a duty to not take personal advantage of confidential information he gained as a result of his employment with Berkshire a key element of insider trading cases.

He has got an insider-trading problem almost certainly, said Gordon Smith,a law professor at Brigham Young University. This is a textbook example.

The news of Sokols trading in Lubrizol comes at time when federal authorities have cracked down on insider trading. The hedge fund manager Raj Rajaratnam is on trial in federal district court in Manhattan in the biggest insider trading case in a generation.

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Sokol was seen by many investors as the most likely successor to Berkshire Hathaways iconic CEO,but Sokol said he did not aspire to the job and wanted to build his own mini-Berkshire instead. Buffett released a letter on Wednesday disclosing that Sokol actively traded in a substantial amount of Lubrizol shares before and while urging Buffett to acquire the company,which Buffett did for 9 billion this month.

Sokol appeared to have made a profit of at least 2.98 million on his investment.

Lubrizol8217;s chief executive,in a regulatory filing on Thursday,said the news would have no effect on the deal and that Lubrizol hoped to close the sale as quickly as possible.

Sokol8217;s move to purchase shares knowing that Lubrizol could be a viable acquisition target could constitute a breach of fiduciary duty to Berkshire because he acquired the information in the course of his employment.