The audit committee of the board of directors at Berkshire Hathaway Inc. (BRKA, BRKB) said its investigation of stock purchases by David Sokol showed the former executive violated company policies and concluded he misled senior management about the investments.

Sokol, who bought shares of a chemicals company shortly before recommending that Berkshire acquire the company outright, may face legal action from the Berkshire board, according to a report prepared by the audit committee and released by Berkshire Wednesday.

The report examines in detail the disclosure Sokol made to Berkshire Chairman Warren Buffett about his investment in the company, Lubrizol Corp. (LZ). Buffett had said in a statement announcing Sokol's resignation in March that Sokol had disclosed that he owned shares in the company, but Buffett didn't ask for details about the date and time of his purchase.

Buffett said in March that Sokol, 54, bought $10 million in shares of Lubrizol about a week before he suggested it to Buffett. Prior to his purchases, Sokol met investment bankers representing Lubrizol and asked them to communicate Berkshire's possible interest in a takeover to the company's management. Berkshire's $9 billion deal to acquire Lubrizol in March boosted the value of Sokol's stake by $3 million.

Sokol's remarks "did not satisfy the duty of full disclosure inherent in the Berkshire Hathaway policies and mandated by state law," the report concluded.

"His remark to Mr. Buffett in January, revealing only that he owned some Lubrizol stock, did not tell Mr. Buffett what he needed to know. … [I]ts effect was to mislead: it implied that Mr. Sokol owned the stock before he began considering Lubrizol as an acquisition candidate, when the truth was the reverse."

Sokol had long been considered a leading candidate to replace Buffett as Berkshire's next chief executive.

Sokol has said the disclosure of the purchases and his resignation were unrelated, that he wasn't a decision maker on the Lubrizol purchase and that he did nothing wrong.

He couldn't immediately be reached on Wednesday.

-By Erik Holm, Dow Jones Newswires; 212-416-2892; erik.holm@dowjones.com
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