Buffett: I Made 'Big Mistake' By Not Questioning Sokol on 'Inexplicable and Inexcusable' Trades

Warren Buffett tells shareholders that like the Salomon Brothers scandal20 years ago, the David Sokol situationis "inexplicable and inexcusable."

Buffett says the unquestionably "inexcusable" part is that Sokol violated Berkshire Hathaway's Code of Ethics and insider trading rules.

A report three days ago from the company's Audit Committee accuses Sokol of misleading Buffett with "incomplete disclosures"about his purchases of Lubrizol shares. Just weeks after buying the stock, Sokol recommended to Buffett that Berkshire acquire the company.

Sokol's Lubrizol holdings increased by $3 million when Berkshire did buy Lubrizolat a 28 percent premium in mid-March.

As for "inexplicable," Buffett says he'll never understand why Sokol did what he did. He can't explain why Sokol didn't disguise his Lubrizol trades if he thought he was doing something wrong. "He was leaving a total record as to his purchases."

He also can't reconcile the fact that Sokol's reputation has been ruined by a scandal involving a $3 million stock profit, when Sokol once volunteered to give up $12.5 million in compensation. At Sokol's suggestion, the money went to his MidAmerican colleague Greg Abel.

Lacy O'Toole/CNBC

Warren Buffett tours the exhibition hall before starting his marathon Q&A with shareholders at the Berkshire Hathaway Annual Meeting in Omaha, April 30, 2011

Buffett did admit that he "obviously made a big mistake by not saying 'Well, when did you buy it?'" when Sokol first told him he owned Lubrizol stock in January.

Buffett also apologized for not including more "outrage" in his March 30 letterannouncing Sokol's "resignation."

Munger added, "I think we can concede that that press release was not the cleverest press release in the history of the world."

After that resignation, Buffett says Berkshire "turned over some very damning evidence, in my view, both to the public and to the SEC."

Federal regulators are reportedly investigating the situation.

In a statement late today, Sokol lawyer Barry Levine says his client is "deeply saddened" that Buffett "would disparage him as he has done today" and again maintained that Sokol never broke the law or any Berkshire policy.

Levine writes, "It is alarming that Mr. Buffett would be advised to so completely flip-flop and resort to transparent scapegoatism."

While Sokol had been widely seen as the leading candidate to succeed Buffett as Berkshire's CEO, Buffett says he's not sure it was "warranted" to assume that was the case.

Buffett expressed confidence in the unnamed person who he thinks is the leading candidate now. "I would lay a lot of money on the fact that he is as straight as an arrow."

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