Sequoia Fund Manager Sued over Concentrated Valeant Position

Jan 12 2016 | 9:53pm ET

Investment firm Ruane, Cunniff & Goldfarb, which runs the well-known $6.3 billion Sequoia Fund, and several executives have been accused of negligence by a group of investors in the fund.

The suit alleges the firm and the individuals were “reckless” in allowing the fund to take a large stake in embattled drug company Valeant Pharmaceuticals, which tanked last year amid ongoing questions about its sales and accounting practices. At one point last August, Valeant accounted for 32% of Sequoia, according to Reuters, allegedly violating the fund’s rule against holding more than 25% of its assets in any one industry.

The subsequent fall in Valeant’s stock resulted in more than more than $2 billion in losses for Sequoia, alleges the suit. The complaint was filed last Friday in New York state court in Manhattan.

In contrast to the fund’s value-oriented second-largest holding, Warren Buffett’s Berkshire Hathaway, the Valeant position was akin to betting on a “fast horse with a history of maladies and with improbably high odds," at the racetrack, according to the suit. 

In addition to the firm, defendants include portfolio managers Robert Goldfarb and David Poppe, Sequoia’s board chairman Roger Lowenstein, and director Robert Swiggett. The lawsuit seeks to recoup damages and management fees for the fund, noted Reuters. 

As of Tuesday, Neither Ruane, Cunniff nor Valeant had commented on the lawsuit. 

The Sequoia Fund has returned an average 7.23% annually over 15 years, according to Reuters citing Morningstar data. However, in 2015 the fund lost 7.29%, dragged down in part by Valeant’s fall. 

The case is Epstein et al v. Ruane, Cunniff & Goldfarb Inc et al, New York State Supreme Court, New York County, No. 650100/2016.

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