Berkshire Hathaway Inc. directors, including billionaire founder Warren Buffett, don't have to face shareholders' suits over challenged stock trades by former Berkshire executive David Sokol, a judge ruled.
Investors can't sue Berkshire's board because it hasn't decided whether to sue Sokol, who headed up a Berkshire unit, over his stock trades in Lubrizol Corp. during a two-month period starting in December 2010 while Sokol was evaluating the chemical company as a possible Berkshire acquisition, Delaware Chancery Court Judge Travis Laster concluded Monday.
"There could be some good reasons" to delay suing Sokol to recover $3 million in profits he made from the Lubrizol stock trades and that inaction doesn't open the board to shareholders' derivative suits, Laster said.
A Berkshire audit committee concluded in April that Sokol, who headed up Berkshire's NetJets Inc. subsidiary, violated the company's insider-trading policies and misled Buffett and other officials about his stake in Lubrizol, which he was recommending as a Berkshire takeover target.
Sokol's purchase of about $10 million in Lubrizol stock while facilitating Buffett's deal to buy the lubricant maker "violated company policies, including Berkshire Hathaway's Code of Business Conduct and Ethics and its insider-trading policies and procedures," according to the report.
Sokol left Berkshire in March 2011 after questions were raised about the stock trades.
Buffett didn't immediately respond to a request for comment e-mailed to his assistant, Carrie Kizer.
Investors sued Berkshire directors in Delaware state court last year alleging the board was dragging its feet in suing Sokol for usurping a corporate opportunity with the stock trades.
Shareholders filed a so-called derivative action which would return any recovery from insurance covering directors to the investment firm's coffers.
Robert Weiser, a lawyer for Berkshire investors seeking to sue the board over Sokol's trades, told Laster on Monday that shareholders had to press the case against the former executive because of directors' unwillingness to do so.
The board "had declined to prosecute its claims" against Sokol, Weiser said.
"We believe it's inexcusable for directors to sit on this claim," he said.