Berkshire finally scolds Sokol by Colin Barr @FortuneMagazine April 27, 2011, 9:00 PM EDT E-mail Tweet Facebook Google Plus Linkedin Share icons Clearing the air before the coming Buffettpalooza weekend, Berkshire Hathaway belatedly slapped the wrist of its wayward son. A report from the company’s audit committee said Wednesday that David Sokol broke company trading rules and lied to CEO Warren Buffett. Sokol is the longtime top executive who unexpectedly quit Berkshire brk.a last month amid questions about his trading in shares of a company Berkshire was acquiring. Not such a swell guy, it turns out The company’s statement comes three days before its heavily attended annual meeting in Omaha and four weeks to the day after Buffett shocked investors by announcing Sokol’s departure. Sokol was the hard-charging, abrasive chairman of Berkshire’s MidAmerican Energy unit and was widely depicted in the press as a possible successor to the 80-year-old Buffett — though Wednesday’s report reveals he had other ideas. The move could take some heat off Buffett, though the Sokol affair will still surely be the talk of the Qwest Center Saturday when Buffett addresses his acolytes. Critics rained scorn on his initial handling of the Sokol news, saying he failed to live up to his commonsense standard of presenting investors with the facts and letting them decide. Instead, Berkshire issued a press release that read to many as a defense of Sokol, whose actions are revealed in the audit committee’s report to have been indefensible. The report says the first Buffett heard of Sokol’s stock purchases was through, gasp, an investment banker. On the morning of March 14, Berkshire Hathaway and Lubrizol announced the signing of the merger agreement. A Citi representative with whom Berkshire Hathaway did business congratulated Mr. Buffett on the merger agreement, and told Mr. Buffett that Citi’s investment bankers had brought Lubrizol to Mr. Sokol’s attention. This was the first time Mr. Buffett heard that investment bankers played any role in introducing Lubrizol to Mr. Sokol, and did not square with Mr. Sokol’s remark in January that he had come to know Lubrizol by owning the stock The report also reveals that Sokol didn’t view himself as a potential successor to Buffett – or at least, didn’t after the trading transgressions came to light. On March 29, Mr. Buffett provided Mr. Sokol an opportunity to review for accuracy a draft Mr. Buffett had prepared of a press release announcing Mr. Sokol’s resignation and disclosing Mr. Sokol’s Lubrizol trades. At Mr. Sokol’s request, Mr. Buffett deleted from the release the one passage Mr. Sokol said was inaccurate: a passage that implied that Mr. Sokol had resigned because he must have known the Lubrizol trades would likely hurt his chances of being Mr. Buffett’s successor. Mr. Sokol told Mr. Buffett that he had not hoped to be Mr. Buffett’s successor, and was resigning for reasons unrelated to those trades. Except for that deletion, Mr. Sokol concurred in the accuracy of the press release. For example, Mr. Sokol left unchanged the statement that when Mr. Sokol made his purchases, he “did not know what Lubrizol’s reaction would be” if Mr. Buffett developed an interest in a transaction. Mr. Sokol also left unchanged Mr. Buffett’s statement that he had “held back nothing in this press release.” Buffett may not have held anything back with that press release, but he didn’t do himself any favors with it either. In the great PR tradition, it buried the news of Sokol’s transgressions, instead starting with the claim that Sokol had resigned to “utilize 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 descendents and funding for my philanthropic interests.” This comment established Sokol as off his rocker, but the bigger news was to come. Buffett later got around to mentioning in that letter the rather daunting fact that he had learned Sokol recommended Berkshire acquire lubricants maker Lubrizol lz without disclosing his purchase of the company’s shares. Without offering much in the way of details, Buffett then said that “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.” Buffett not being a judge, that line drew a few hoots and hollers. And though Sokol is reportedly getting some attention now from the Securities and Exchange Commission on the legality front, who knows if we will ever hear again about that. Anyway, if the Berkshire audit committee’s report is predictably protective of Buffett, at least no one can say now that the company is blind to the fact that Sokol is a creep. It isn’t much, but it may have to do for the faithful in Omaha. Also on Fortune.com: The decline and fall of business ethics Sokol’s lost lessons in integrity Buffett’s Mr. Fixit Follow me on Twitter @ColinCBarr.