Mason Kirby, a Berkshire shareholder, today sued the company in a Delaware court over “reputational impairment” it received when the circumstances surrounding the $9 billion deal came to light.
The suit centers on the actions of David Sokol, former chairman of several subsidiaries of Omaha, Neb.-based conglomerate, and current Chairman and CEO Warren Buffett, prior to the acquisition. As was widely reported, Sokol purchased 96,060 Lubrizol shares in January for $104-a-share ahead of the $135 per share that Berkshire offered to pay for Lubrizol shares on March 14.
In light of the revelations, Buffett accepted Sokol’s resignation on March 31 but maintained that the stock purchases were not “in any way unlawful.” Kirby’s lawsuit claims the ethical questions and possible Securities and Exchange Commission charges stemming from the affair have harmed the company.
David Sokol a former Berkshire employee and key lieutenant to Warren Buffett Berkshire CEO, used his position of influence to profit for himself at the expense of Berkshire,” the lawsuit states. “As a key executive at Berkshire, and rumored potential successor to Buffett, Sokol knew that Buffett would closely consider and likely take his recommendation regarding an acquisition of Lubrizol.”
Kirby contends that Sokol’s purchases and Buffett’s failure to act in response to Sokol’s admission that he held Lubrizol stock violated Company’s corporate policies. “Buffett and Sokol, working in concert, breached their duties to Berkshire and its shareholders through these actions and put the Company at risk for a potential adverse SEC action and negative credit rating –events which would be detrimental to the Company.”
As evidence of damage to shareholders, the lawsuit notes that Berkshire’s stock fell in wake of the revelations and that the company suffered “significant reputational” losses. “Once the Sokol trades were disclosed, and Sokol resigned from Berkshire, Berkshire’s stock price fell. This immediate stock drop evidences the reputational impairment that Berkshire took as a result of this conduct.”
