Shareholder rights law firm Robbins Arroyo LLP announces that a complaint was filed in the Supreme Court of the State of New York, County of New York. The complaint alleges that officers and directors of Sequoia Fund Inc. (SEQUX) violated the Investment Company Act of 1940 by causing the Fund to deviate from sound investment principles and certain of the Fund’s investment policies as set forth in the Fund’s Prospectus, Registration Statement, and Statement of Additional Information. Sequoia is an open-end mutual fund.
“typically sells the equity security of a company when the company shows deteriorating fundamentals, its earnings progress falls short of the investment adviser’s expectations, or its valuation appears excessive relative to its expected future earnings”
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Sequoia Accused of Deviating From Sound Investment Principles
According to the complaint, beginning around March 2015, Sequoia officials recklessly caused the Fund to deviate from sound investment principles, as well as the Fund’s investment policies in its Prospectus, Registration Statement, and Statement of Additional Information. The Prospectus states that the Fund “typically sells the equity security of a company when the company shows deteriorating fundamentals, its earnings progress falls short of the investment adviser’s expectations, or its valuation appears excessive relative to its expected future earnings” (the “Sell Strategy”). The Fund’s performance deviated from its Sell Strategy because Sequoia officials caused the Fund to maintain a heavily concentrated position in Valeant Pharmaceuticals, Inc., even though Valeant, at its peak of over $263 per share in August 2015, was trading at close to 100 times Valeant’s 2014 earnings under generally accepted accounting principles. Further, Valeant represented about 32% of the Fund’s net assets and about 36% of its stock holdings at its August 2015 peak. Sequoia officials therefore ignored the Sell Strategy and prudent investment behavior by failing to prune the Fund’s concentrated Valeant position.
The complaint further alleges that the Fund’s Valeant position violated its Concentration Policy, which prohibits the Fund from investing 25% or more of the value of the total assets of the Fund in any particular industry. Contrary to the Concentration Policy, the Fund’s Valeant holdings exceeded 35% of its net assets at the close of the quarters ended March 31, 2015 and June 30, 3015. Furthermore, the complaint contends that Sequoia officials were aware of the criticism Valeant faced for its aggressive drug pricing, murky financials, and high debt levels, yet continued to hold an enormous stake in Valeant. Sequoia’s deviation from these policies caused the Fund to lose over $2 billion dollars – or about 25% of its value – when Valeant’s stock price sustained a substantial decline in value around September 2015.
Sequoia Shareholders Have Legal Options
Concerned shareholders who would like more information about their rights and potential remedies can contact attorney Darnell R. Donahue at (800) 350-6003, DDonahue@robbinsarroyo.com, or via the shareholder information form on the firm’s website.
Robbins Arroyo LLP is a nationally recognized leader in shareholder rights law. The firm represents individual and institutional investors in shareholder derivative and securities class action lawsuits, and has helped its clients realize more than $1 billion of value for themselves and the companies in which they have invested.
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