Warren Buffett's Berkshire Hathaway was last night plunged into a succession crisis, after the billionaire's assumed successor quit in a share-trading scandal.
David Sokol, one of Mr Buffett's closest lieutenants, was revealed to have made a $3m paper profit on shares in the chemicals maker Lubrizol, after persuading Mr Buffett that Berkshire should make a takeover bid.
Mr Sokol's purchases of shares in Lubrizol began on 14 December last year, the day after he picked the company from a list of potential bid targets drawn up by Berkshire's bankers at Citigroup. Berkshire announced the $9bn takeover of Lubrizol, one of the largest acquisitions in Mr Buffett's career, earlier this month.
"Dave's purchases were made before he had discussed Lubrizol with me and with no knowledge of how I might react to his idea," Mr Buffett said last night, in a letter to Berkshire shareholders announcing Mr Sokol's resignation. "In addition, of course, he did not know what Lubrizol's reaction would be if I developed an interest.
"Furthermore, he knew he would have no voice in Berkshire's decision once he suggested the idea; it would be up to me and [vice-chairman] Charlie Munger, subject to ratification by the Berkshire board, of which Dave is not a member."
Mr Sokol first presented Lubrizol as a potential takeover target to Mr Buffett in mid-January, after he had amassed 96,060 shares in the company at up to $104 per share. It took him several weeks to persuade Mr Buffett of the merits of the deal, but eventually a formal bid was tabled at $135 per Lubrizol share.
In his statement to shareholders, Mr Buffett sought to portray Mr Sokol's resignation as unrelated to the share-trading revelations. He said the "unusual" press release contained "two sets of facts, both of them about David Sokol". And he said he did not ask his lieutenant to quit.
"Neither Dave nor I feel his Lubrizol purchases were in any way unlawful. He has told me that they were not a factor in his decision to resign."
In a section of his resignation letter released last night, Mr Sokol wrote to his boss: "As I have mentioned to you in the past, it is my goal to utilise the time remaining in my career to invest my family's resources in such a way as to create enduring equity value and hopefully an enterprise which will provide opportunity for my descendants and funding for my philanthropic interests."
Mr Buffett revealed that Mr Sokol had twice before mooted leaving Berkshire but had been talked out of it.
The billionaire investor often heaps praise on his senior managers, not least for their devotion to Berkshire when other giant companies pay their executives much higher salaries and bonuses.
Mr Sokol came to prominence at Berkshire as chief executive of MidAmerican, a power company, and he has more recently run NetJets, the private jet hire division which ran into trouble. His experience across Berkshire's sprawling collection of businesses, and his closeness to Mr Buffett, led investors and analysts of the company to believe that he would eventually step into his boss's shoes.
The 80-year-old Mr Buffett has never publicly revealed Berkshire's succession plan, though he has always said it is well known to the board. His responsibilities will be divided between a chief executive that would oversee its operating businesses, expected to be Mr Sokol, and a new chief investment officer who would manage the company's portfolio of shares.