NU Online News Service, April 28, 10:16 a.m.EST

Berkshire Hathaway Inc. is considering whether to pursue legalaction against former company executive David Sokol, who was oncethought to be among a handful of candidate to replace chiefexecutive Warren Buffett.

Sokol resigned a month ago after it was learnedhe made stock trades in chemical company Lubrizol before Berkshireannounced its $9 billion acquisition of the company.

Sokol had been chairman of Berkshire's MidAmerican Energy,NetJets and Johns Manville units.

Berkshire Hathaway says the audit committee of its board hasreleased a report about Sokol's trading that says the formerexecutive's purchases of Lubrizol shares violated companypolicies.

Furthermore, Sokol's “misleading, incomplete disclosures toBerkshire Hathaway senior management concerning those purchasesviolated the duty of candor he owed the company,” says the reportfrom the committee, which goes on to use Sokol as an example of theimportance of adhering to company policies.

Sokol was “encouraged” to scout for potential acquisitionopportunities in 2010 and, after meeting with investment bankers,Sokol asked them to give him information about companies in thechemical industry. The bankers came back with a list of 18companies, which were narrowed down by Sokol to three, includingLubrizol.

What followed was a series of buying and selling of Lubrizolshares by Sokol during late 2010 into 2011, says the report.

In January, when Sokol told Buffett about Lubrizol, he mentionedhe owned the stock but did not tell Buffett about the timing of thebuys or about the fact he bought the shares after arranging ameeting with Lubrizol's chief executive. According to the report,Buffett thought Sokol had knowledge of Lubrizol because he was astockholder, not because investment bankers brought the company toSokol's attention.

Buffett did not learn investment bankers were involved inintroducing Lubrizol to Sokol until they congratulated Buffett onan announcement in March that Berkshire and Lubrizol had plans fora merger.

When Sokol resigned, for reasons he said were personal, he saidhe was doing so for reasons unrelated to the trades.