The investment firm that runs the Sequoia Fund is being sued for its large stake in embattled drug company Valeant Pharmaceuticals International Inc. That investment has cost clients more than $2 billion over the last 12 months.
Investment firm Ruane, Cunniff & Goldfarb; portfolio managers Robert Goldfarb and David Poppe; and two directors have been accused of gross negligence for letting Sequoia amass a Valeant stake that peaked at 32% of its portfolio in August.
The complaint, filed in New York state court in Manhattan, says the Sequoia Fund violated Sequoia’s policy of not investing more than 25% of assets in one industry.
The lawsuit also says Sequoia’s own strategy of “value-oriented” investing was violated because of the heavy investment in a single company.
Valeant shares have lost about two-thirds of their value since early August.
Sequoia’s investment “is akin to a gambler at the race track betting more than one quarter of his net worth on a fast horse with a history of maladies and with improbably high odds,” the complaint said.
“Just as it should come as no surprise to the gambler when the horse pulls up lame, the same holds equally true for the defendants,” it added.
The lawsuit hopes to receive damages and win back management fees that were accepted by the fund.
The lawsuit cites news reports that those directors objected to the Valeant stake.
The $6.3 billion Sequoia fund has returned an average 7.23% annually over 15 years, making it one of the most profitable funds among its competitors — until the collapse of Valeant Pharmaceuticals.
The case is Epstein et al v. Ruane, Cunniff & Goldfarb Inc et al, New York State Supreme Court, New York County, No. 650100/2016.