Two Sequoia Fund Directors Resign as Valeant Losses Mount

  • Pair left as fund defends its investment in Valeant stock
  • Valeant under fire from short sellers for sales practices

Two of the five independent directors of the Sequoia Fund, run by the largest shareholder in Valeant Pharmaceuticals International Inc., have resigned.

Vinod Ahooja and Sharon Osberg, who were listed as independent directors on Sequoia’s semiannual report, have quit, Roger Lowenstein, chairman of the fund, said in a telephone interview. He declined to comment on why they left. The two are no longer listed as directors on the fund’s website.

The $8.1 billion Sequoia Fund is among the biggest losers from the recent slump in Valeant, the drugmaker under fire from critics who accuse it of using a mail-order pharmacy to inflate its sales figures. The fund, a longtime investor in the company, had almost 29 percent of its assets in the stock at the end of the second quarter, a position that lost $1.6 billion in value in the past three months.

“It is weird that two directors resigned at the same time,” Steven Roge, a longtime investor in Sequoia who oversees more than $200 million at R.W. Roge & Co. in Bohemia, New York, said in a telephone interview. “That gives you pause.”

Independent directors of a mutual fund board are responsible for looking after the interests of shareholders, and providing a check on the fund’s management, according to the website of the Investment Company Institute, a Washington-based trade group for the mutual fund industry. The Investment Company Act of 1940 requires a certain percentage of each fund’s directors to be independent.

Defending Valeant

Osberg, a former world bridge champion and partner of billionaire Warren Buffett in the card game, said in a telephone interview that she resigned on Oct. 25 and declined to comment further. Ahooja didn’t return a telephone call seeking comment.

The Sequoia Fund is run by Ruane Cunniff & Goldfarb, a New York investment firm that owned almost 10 percent of Valeant shares as of June 30, making it the company’s biggest shareholder. Calls to Ruane Cunniff seeking comment weren’t returned.

Valeant’s business practices have been under fire from short-sellers, who make money when shares decline. They accuse Valeant of using a mail-order pharmacy called Philidor Rx Services LLC to inflate its sales figures. The drugmaker defended itself in a call with investors on Monday, saying it was legally insulated from Philidor.

Robert Goldfarb and David Poppe, managers of the Sequoia Fund, on Wednesday stood by their investment in Valeant, saying the company is “aggressively managed” but operates within legal boundaries.

‘Some Suffering’

“Our consultations with lawyers who specialize in the pharmaceutical industry lead us to believe there is no legal reason Valeant can’t advise, control or own Philidor,” they wrote in a letter to shareholders.

Daniel Teed, president of Wedgewood Investors, an Erie, Pennsylvania-based firm that invests in the Sequoia Fund, said he has confidence in the fund’s management.

“We are very comfortable with the way the fund operates,” Teed, whose firm manages $175 million, said by phone. “The Valeant investment worked well for a long time but it is creating some suffering now.”

The Sequoia Fund was co-founded in 1970 by Richard Cunniff and William Ruane, a friend of Buffett from the days when the two studied together under the value investor Benjamin Graham at Columbia University. Ruane died in 2005 and Cunniff in 2014.

Fund’s Stake

The fund first invested in Valeant in the third quarter of 2010 when shares averaged about $23, according to data compiled by Bloomberg. Valeant reached an all-time high of $263.81 in intraday trading during August. It closed today at $111.50 in New York, down 4.7 percent for the day and a slump of 58 percent from the peak.

The Sequoia fund declined 3.8 percent this year through Oct. 28, trailing 89 percent of rivals, according to data compiled by Bloomberg. Before Valeant began tumbling in August, the fund was beating 99 percent of its competition.

The fund has no relationship to Sequoia Capital, a well-known venture capital firm in Menlo Park, California.

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