Berkshire Hathaway's annual meeting over the weekend was dominated by sombre topics, as billionaire US investor Warren Buffett explained to roughly 40,000 shareholders how the company had been battered by a trusted former employee's misdeeds and a string of natural disasters.
Mr Buffett assured the crowd at an Omaha convention centre that Berkshire was strong enough to withstand both the David Sokol scandal and the estimated $1.7bn (€1.1bn) in insurance losses that drove profits down 58pc in the first quarter.
He said he didn't think he would ever understand why Mr Sokol bought stock in Lubrizol shortly before recommending that Berkshire buy the chemical company. Mr Buffett said he believed Mr Sokol clearly violated Berkshire's ethics and insider trading policies.
"It's a situation that's sad for Berkshire and sad for Dave," Mr Buffett said.
Mr Sokol has denied any wrongdoing, and his lawyer issued a statement taking issue with Mr Buffett's comments.
"David Sokol is deeply saddened that Mr Buffett, whom he considered a friend and mentor, would disparage him as he has done today," the statement read.
Mr Buffett acknowledged he made a mistake by not asking Mr Sokol more about his Lubrizol stock when they first discussed the company in January. Mr Buffett said he had no reason to think Mr Sokol had bought the stock the week before.
Mr Buffett previewed Berkshire's earnings at the annual meeting, ahead of their scheduled release. He said the biggest factor in the earnings drop was roughly $1.7bn in pre-tax losses related to the Japanese earthquake and tsunami, Australian floods and the New Zealand earthquake.
"We had probably the second-worst quarter for the insurance industry in terms of disasters around the globe," he said.
Reinsurance companies, like Berkshire's General Re and National Indemnity, sell back-up insurance to primary insurers so the industry can cover big losses. Mr Buffett estimates that Berkshire will report $1.5bn in net income, down from $3.6bn last year. He did not offer earnings per-share figures.
Answering questions at the meeting, Mr Buffett said he didn't have all the information about Mr Sokol when he announced the former MidAmerican Energy chairman's resignation in March. Mr Buffett said he learnt that Mr Sokol had met with investment bankers about Lubrizol only after the deal was announced.
Mr Sokol's lawyer said he never tried to withhold information from Mr Buffett or other Berkshire officials.
But Berkshire's board said Mr Sokol's disclosures about his Lubrizol investment were misleadingly incomplete.
Mr Buffett said part of the reason he found Sokol's actions inexplicable was that years before Mr Sokol rejected a compensation plan that might have paid him a $50m bonus. Instead he shared the bonus equally with one of his fellow managers at MidAmerican. Mr Buffett said all of Berkshire's policies on ethics and insider trading would be reviewed.
Mr Sokol's roughly $10m Lubrizol investment turned into about $13m after Berkshire announced its $135 per share offer for the company.
Berkshire's audit committee said the board may consider legal action against Mr Sokol to recover his trading profits and compensate Berkshire for any damage it sustained.