David L. Sokol

David L. Sokol
Dave Sokol at the Berkshire Hathaway Annual Meeting
Born	David L. Sokol 1956 Omaha, Nebraska
Nationality	American

David L. Sokol (born 1956) was a Chairman, President and CEO of NetJets^[1] along with Chairman of MidAmerican Energy Holdings Company, of which Berkshire Hathaway holds a 100% and 89.8% stake respectively.^[2] He resigned March 28, 2011, amid an insider trading scandal.

Early life

The youngest of five children, David Sokol was born in 1956 in Omaha, Nebraska. His father managed a grocery store in Omaha when he was born. He attended Catholic grade school and public high school.^[3] "My parents had been married for 25 years by the time I came along," says Sokol. "My oldest sibling is 23 years older than me, so there were times when it seemed like I had more than just two parents."

Sokol's father was focused on the positive side of life. It was his habit on weekends to go through the newspaper looking for articles that would inspire his family. "We were all expected to sit together for dinner on Sundays," says Sokol. "My father would ask us to read aloud the stories he had circled. They were always about a local businessman who had done well, or maybe about someone who had given money to help resolve a problem. He instilled in us a belief that we, too, could do the great things we read about in the paper. His parents came over from Poland and he was a 100 percent believer in America-that if you apply yourself in this country, you can do anything. I was raised with that philosophy, and I agree with my father."

Sokol describes his mother as traditional and loving. Even though their home was modest, she made it comfortable and welcoming. "She was the kind of mother who had cookies warm out of the oven when you came home from school," says Sokol. "She focused on our care and education." Sokol's parents would not be able to pay for their children's college education, but it was expected that each of them would go. "My father expected us to work our way through school, but he didn't think that was a bad thing. He believed you learned a lot from working."

When Sokol was 11, his mother was diagnosed with breast cancer. To help out with expenses, Sokol worked as a paperboy, as a caddie at a golf course, and as a janitor in a hardware store. He also helped local farmers bale hay. In high school, he worked as a maintenance manager for an apartment complex. He also worked for a local grocery store, starting as a bagger and then in less than two years becoming the night manager.

Sokol was able to keep this job when he entered the University of Nebraska. His life was busy and focused. He lived at home, went to school during the day, and worked at night. Sokol was an able student who got progressively better as he got older. He had been involved in football, wrestling, and track in high school and went on to play football in college. When he realized he couldn't have a career in football, he began to take school more seriously.

Shortly before the end of his junior year in college, Sokol married. He moved out of his parents' home and into a trailer with his bride, Peggy. By the time he graduated, he had a child on the way. "At that time, my main goal was to get my salary above my age," he says. Sokol graduated in 1978 and went to work as a structural engineer for one of the top five engineering companies in America, HDR, Inc.^[4]

Professional career

Previously, Sokol served as the Chief Executive Officer of MidAmerican Energy Holdings Company (formerly CalEnergy Company Inc.) a subsidiary of Berkshire Hathaway Inc. from April 19, 1993 to April 16, 2008. He served as the President of MidAmerican Energy Holdings from April 19, 1993 to January 21, 1995. Formerly, among other positions held in the independent power industry, Sokol served as President and Chief Executive Officer of Kiewit Energy Company, which was a wholly owned subsidiary of Peter Kiewit Sons' Inc., and Ogden Projects Inc. Sokol served as Chief Executive Officer and Chairman of the Board of Managers of MidAmerican Funding LLC, a subsidiary of MidAmerican Energy Holdings, since its formation in March 1999. He served as a Manager of Berkshire.

Sokol serves as the Chairman of the Board of Ce Casecnan Water & Energy Co., Inc. He serves as Chairman of Omaha Metropolitan Entertainment and Convention Authority. He served as the Chairman of the Board of MidAmerican Energy Holdings Company since May 1994. He served as Chairman of HomeServices of America, Inc. (formerly HomeServices.Com Inc.) since inception in July 1999. He served as Chairman of Northern Electric PLC. He has been a director of HomeServices of America, Inc., since July 1999. He serves as a director of Ce Casecnan Water & Energy Co., Inc., and Omaha Airport Authority. He has been Director of MidAmerican Energy Holdings since March 1991. He served as a director of MidAmerican Funding LLC, since formation in March 1999. He served as Non-executive Director of BYD Company Ltd.,from August 4, 2009 to April 1, 2011.

He served as a director of Northern Electric PLC from January 1997 to June 1, 2007. He also served as a director of CE Electric UK Funding Company until June 1, 2007. He holds Bachelor of Science in Civil Engineering from University of Nebraska, Omaha in 1978 and Honorary Doctorate from Bellevue University Bellevue Nebraska.^[5] In 2008, he authored and self-published "Pleased But Not Satisfied", which described his business philosophy.

Involvement with Berkshire Hathaway

Prior to his abrupt resignation in March 2011, David Sokol was widely regarded as the likely successor to Warren Buffett.^[6] Often referred to as Buffett's Mr. Fix-It,^[7] Sokol was tasked with rescuing underperforming Berkshire divisions Johns Manville and NetJets. Under Sokol's leadership Johns Manville was brought back on track and NetJets swung from a $157 million loss in 2009 to a $207 million gain in 2010.^[8]

Sokol was also integral in the selection of acquisition targets at Berkshire. In 2008, Sokol flew to China to research car manufacturer BYD, which resulted in Berkshire acquiring a $230 million stake. This position was worth over $1.5 billion in 2010. Later in 2008, Sokol engineered the acquisition of Constellation for $4.7 billion, sparing the energy company from bankruptcy.^[7]

Lawsuits

In April 2010, Omaha's Douglas County judge Gary Randall^[9] found that Sokol, who was the CEO of MidAmerican Energy Holdings Company, decided to change future profit calculations in such a way that eliminated San Lorenzo’s stake in a Philippines project in the 1990s. Judge Randall said that Sokol and MidAmerican had acted “willfully and intentionally.”^[9] The court levied a $32 million dollar^[10] ruling against MidAmerican. This ruling may be worth $140 million dollars in future profits.

In a second case, courts in San Francisco and Omaha ruled against MidAmerican for a total of $52 million^[9] in past profits, while also restoring ownership to La Prairie and San Lorenzo. These rights could amount to $280 million dollars in future profits.

The third lawsuit for $150 million alleges that Sokol “secretly resumed negotiations” ^[9] that led to a lower projected profit.

A Berkshire Hathaway (BRKB) shareholder is suing Warren Buffett, David Sokol and Berkshire in connection with Sokol’s decision to invest in Lubrizol (LZ) and then recommend to Buffett that Berkshire buy the company. Bloomberg reported that investor Mason Kirby is suing for damages in connection with Sokol’s trade and the subsequent damage to Berkshire’s reputation.^[11] On March 31, Buffett announced that Sokol was resigning to spend time with his family, while also explaining that Sokol had bought shares in Lubrizol before recommending it to Buffett. Berkshire eventually bought the chemical company, resulting in a substantial gain for Sokol on his shares. David Sokol’s personal investment into Lubrizol was approximately 9 million dollars with about a 3 million dollar profit after Warren decidedly bought the company for 9 billion dollars.^[11] “Sokol knew that Buffett would closely consider and likely take his recommendation,” Kirby said, according to Bloomberg. “As a result of Sokol’s unethical behavior, Berkshire suffered significant reputational losses and other damage.”^[11] “Kirby went on to allege that Buffett and Sokol were “working in concert” and “put the company at risk for a potential adverse SEC action and negative credit rating.”^[11]

Resignation and Lubrizol-related share activity

Sokol purchased 96,060 shares of Lubrizol at a limit price of $104 per share between January 5 and 7, 2011. He presented the idea of Berkshire acquiring Lubrizol to Buffett on January 14 or 15, 2011, and again after a January 25 meeting with Lubrizol's CEO. Berkshire Hathaway's board voted to acquire Lubrizol at $135 per share on March 13, 2011.^[12]

On March 28, 2011, Sokol tendered his resignation from Berkshire Hathaway. In his press release detailing the resignation, Mr. Buffett detailed trading activity surrounding the Lubrizol acquisition, emphasizing that he did not believe anything unlawful transpired.^[13]

Warren Buffet latter stated that on March 30th he did not have all the facts that have subsequently been discovered.^[14] Berkshire Hathaway audit committee report stated April 26, 2011 his purchases of Lubrizol shares while serving as a representative of Berkshire Hathaway in connection with a possible business combination with Lubrizol violated company policies, including Berkshire Hathaway’s Code of Business Conduct and Ethics and its Insider Trading Policies and Procedures.^[14] His misleadingly incomplete disclosures to Berkshire Hathaway senior management concerning those purchases violated the duty of candor he owed the Company.^[14] As reported by Sorkin, is that even when making this public pronouncement of support, Buffet was notifying the SEC about Sokol’s conduct. Sorkin reported that “the day he issued the release, Berkshire called the Securities and Exchange Commission and briefed them on Mr. Sokol’s trades, which Mr. Buffett described to me as “pretty damning evidence.” “Calling the head of the enforcement division of the S.E.C. and laying out a pattern of trading that you know is going to result in something — Dave [Sokol] probably thought it was pretty harsh,” Mr. Buffett told me. The SEC is now investigating the matter, people briefed on the inquiry said.^[15]

After the audit report The New York Times DealBook: Munger, Tolles & Olson, Mr. Buffett’s longtime outside law firm, helped prepare the report, which was presented to Berkshire’s board on Tuesday night. Ronald L. Olson, a partner at the firm, sits on Berkshire’s board. It has been determined that three major violations have occurred that will be investigated are:

• Breach of the Duty of Candor The audit committee directly accuses you of a breach of the duty of candor that each employee owes to their employer. This duty generally requires a employee to disclose information germane to any company transaction within their knowledge that would be found material. The standard does not take into account whether you believed it was material at the time of the transaction.^[16]
• Usurpation of Corporate Opportunity The audit committee alleges that you seized a corporate opportunity from Berkshire Hathaway by trading in the stock of Lubrizol. More specifically, the profit you made trading Lubrizol stock more rightly belongs to Berkshire Hathaway because you breached the duty of loyalty, a duty each employee owes to his employer.^[16]
• Federal Insider Trading This is the big kahuna, the one you should truly fear. The audit committee again did not help your case. To find insider trading, there not only has to be possession of inside information, but the information must be obtained through a breach of duty. The audit committee alleges in its report that you violated the company’s insider trading policy. If true, this is probably sufficient to establish the breach of duty part of the insider trading test.^[16]

Berkshire’s board and audit committee are considering whether to pursue “possible legal action against Mr. Sokol to recover any damage the company has sustained, or his trading profits,” the report says. Sokol’s trading profits have been reported to be approximately 3 million dollars.^[17]

References

• Sokol's biography on Midamerican's official website Retrieved from Google cache.

1. ^ "Cuts at NetJets delay expansion plans in Ohio". Springfield News-Sun. http://www.springfieldnewssun.com/news/ohio-news/cuts-at-netjets-delay-expansion-plans-in-ohio-295975.html. Retrieved 3-October-2009. 
2. ^ http://www.berkshirehathaway.com/2010ar/201010-K.pdf
3. ^ http://www.bloomberg.com/news/2011-04-28/sokol-once-buffett-s-heir-apparent-is-rebuked-by-berkshire.html
4. ^ "David L. Sokol". Horatio Alger Association. http://www.horatioalger.org/members_info.cfm?memberid=SOK04. Retrieved 1-May-2011. 
5. ^ "David L. Sokol". Bloomberg Businessweek. http://investing.businessweek.com/businessweek/research/stocks/people/person.asp?personId=403191&ticker=BRKA:GR&previousCapId=255251&previousTitle=Berkshire%20Hathaway%20Inc.. Retrieved 1-May-2011. 
6. ^ Pleven, Liam (March 31, 2011). "Buffett Successor List Gets Shorter". The Wall Street Journal. http://online.wsj.com/article/SB10001424052748704530204576233292549845136.html. 
7. ^ ^{a b} Dumaine, Brian (August 2, 2010). "Warren Buffett's Mr. Fix-It: Full Version". CNN. http://money.cnn.com/2010/07/29/news/companies/buffets_mr_fixit_full.fortune/index.htm. 
8. ^ http://www.berkshirehathaway.com/2010ar/2010ar.pdf
9. ^ ^{a b c d} "Stakes high in MidAmerican suits". Springfield News-Sun. http://www.omaha.com/article/20100414/MONEY/704149937. Retrieved 3-October-2009. 
10. ^ Dumaine, Brian. "Warren Buffett's Mr. Fix-It: Full Version". CNN News. http://money.cnn.com/2010/07/29/news/companies/buffets_mr_fixit_full.fortune/index.htm. Retrieved 3-October-2009. 
11. ^ ^{a b c d} McKenna, Francine. Forbes. http://blogs.forbes.com/francinemckenna/2011/04/20/its-not-futile-shareholder-sues-sokol-buffett-and-berkshire-hathaway-board/. 
12. ^ "Berkshire Hathaway press release". Mar 30, 2011. http://www.berkshirehathaway.com/news/MAR3011.pdf. Retrieved Mar 31, 2011. 
13. ^ http://www.berkshirehathaway.com/news/MAR3011.pdf
14. ^ ^{a b c} http://www.berkshirehathaway.com/dlsokol/dlsokolreport.pdf
15. ^ http://tfoxlaw.wordpress.com/2011/05/05/buffet-sokol-and-reporting-to-the-sec/
16. ^ ^{a b c} Davidoff, Steven M.; Henning, Peter J. (April 28, 2011). "Advice for David Sokol". The New York Times. http://dealbook.nytimes.com/2011/04/28/advice-for-david-sokol/. 
17. ^ McKenna, Francine. Forbes. http://blogs.forbes.com/francinemckenna/2011/04/28/berkshire-hathaway-gets-an-i-for-incomplete-on-sokol-investigation/. 

Persondata
Name	Sokol, David L.
Alternative names
Short description
Date of birth	1946
Place of birth	Omaha, Nebraska
Date of death
Place of death