The revered magnate, who 20 years ago vowed to ruthlessly deal with staff who tarnish his firm's reputation, told a stadium full of attentive shareholders that David Sokol had broken company rules in a share-trading scandal.

Once Buffett's heir apparent, Sokol resigned after it emerged he bought $10 million worth of shares in chemicals firm Lubrizol before recommending Buffett's Berkshire Hathaway group snap up the company. He gained an estimated $3 million from the deal.

Sokol had "violated" company rules, Buffett told tens of thousands of shareholders gathered at the Qwest Center in Omaha, Nebraska for what has become an annual pilgrimage for his fans dubbed the "Woodstock of capitalism."

"I don't think there is any question about the inexcusable part. He violated the code of ethics. He violated our insider trading rules. He violated the principles I lay out every two years," Buffett said.

Addressing whether Sokol's actions appeared to be motivated by greed, Buffett recounted that the aide once turned down a $50 million pay package, preferring instead to split it with a colleague.

He also noted that Sokol had not sought to disguise the trade, instead buying shares in his name.

But Buffett's comments did not appear to appease some angered shareholders, who cheered after a questioner demanded to know why Sokol was not sacked on the spot, and why the billionaire's initial response was so "inadequate."

Buffett offered a blow-by-blow account of the dates and details of conversations that took place regarding the trade, before admitting that he made a mistake.

He said he had wanted to weigh the work done by Sokol with the "very damning evidence" about his actions the company had released to the public and to the Securities and Exchange Commission.

Buffett's response also drew cheers.

Attempting to display his transparency, Buffett opened the meeting by saying that a transcript of questions relating to "the Lubrizol affair" would be made available online.

But the scandal has thrown up uncomfortable questions for a firm that prides itself on honesty, as well as poising questions about whether Buffett's appointed successor would maintain the company's ethos.

Buffett said he was certain the unnamed front-runner to be his successor was "as straight as an arrow."

He went on to praise the work of Indian-born Ajit Jain, who runs the company's reinsurance business and has been tipped as a possible contender.

"I cannot think of a decision he has made that I could have made better," said Buffett.

He also reported that Berkshire's companies, which span the clothing and insurance sectors -- and much more in between -- were starting to feel more optimistic about the US economic recovery.

"Pretty much all of our businesses with the exception of those that are related to residential housing are getting better," he said.

That optimism came despite the fact the firm's profits were expected to drop by 60 percent in the first quarter to around $1.5 billion.

Floods in Australia, an earthquake in New Zealand and Japan's massive earthquake-tsunami disaster, however, hit the company's re-insurance arm, which was expected to take a loss from underwriting for the first time in nine years.

He added that Geico, Berkshire's car insurance branch, expected to see 25,000 claims for the deadly tornadoes that ravaged the US south this week.

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