Sequoia Fund is sued over big Valeant stake

Mon Jan 11, 2016 1:35pm EST
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By Jonathan Stempel

NEW YORK Jan 11 (Reuters) - The investment firm that runs the Sequoia Fund, long known for its ties to Warren Buffett, was sued by shareholders who claim it recklessly took a huge stake in embattled drug company Valeant Pharmaceuticals International Inc, causing more than $2 billion in losses.

Investment firm Ruane, Cunniff & Goldfarb; portfolio managers Robert Goldfarb and David Poppe; and two directors were accused of gross negligence for letting Sequoia amass a Valeant stake that peaked at 32 percent of its portfolio in August.

According to the complaint filed on Friday in a New York state court in Manhattan, this violated Sequoia's policy of not investing more than 25 percent of assets in one industry.

The complaint also called it the "antithesis" of Sequoia's strategy of seeking investments such as Buffett's Berkshire Hathaway Inc, its second-largest holding, that represent "value-oriented" investing.

Valeant shares have lost about two-thirds of their value since early August amid concerns about its drug pricing, merger appetite and since-severed ties to a mail-order pharmacy.

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.

Other defendants include the author Roger Lowenstein, who chairs Sequoia's board, and director Robert Swiggett. The lawsuit seeks to recoup damages and management fees for the fund.   Continued...