SF Biotech Venture Vet Steve Burrill Dumped by LPs, Sued for Fraud

6/18/14Follow @alexlash

There’s more turmoil for G. Steven Burrill, the former accountant who has run a San Francisco biotech finance group under his own name for two decades.

Burrill, known for his natty suits and pink shirts, is being sued for fraud by a former colleague for allegedly taking cash meant for investment and diverting it to his own “designees and affiliates.”

That’s according to a lawsuit filed in California state court last week and first reported by Forbes this morning. Burrill’s alleged conduct also led his limited partners—his investors—to oust him this March from control of Burrill & Co.’s third general venture fund, which has raised $283 million, according to court documents.

Burrill could not be reached immediately for comment. (You can see the lawsuit, without its exhibits, here.)

The revelations come six months after Xconomy reported that Burrill’s latest fund, his fourth, fell well short of the $505 million mark Burrill had originally announced. At $200 million, the fund is also no longer under Burrill’s control. He transferred his ownership stake in the fund late last year to a new entity called Biomark Capital, run by former Burrill colleagues, as Xconomy reported.

The new lawsuit revolves around activities related to previous funds, however. The accuser is Ann Hanham, who worked at Burrill & Co. for 13 years, most of the time as a managing director of Fund II and Fund III. In 2013, she and others discovered that $20 million raised for the firm’s third general venture fund had “gone missing,” according to Hanham’s lawsuit, and had been “diverted from Fund III to Burrill and/or various Burrill entities over a period of several years, ostensibly (1) “to ‘prepay’ for management services not yet rendered, and (2) to fund unspecified and unauthorized loans,” the court filing says.

Victor Hebert, a lawyer who has worked with Burrill & Co. for years, first as outside counsel and then on staff, and Helena Sen, the firm’s chief financial officer, are also named as defendants, as are Burrill & Co. and Burrill Capital themselves.

After Hanham and her fellow managing directors Roger Wyse and Bryant Fong brought the situation to Burrill’s attention in September 2013, according to the lawsuit, they received a written response that Burrill and Hebert were “endeavoring to repay” the funds. (Wyse and Fong are not party to the lawsuit.)

Meanwhile, Burrill was pressuring Hanham and others to find new streams of revenue for the firm to make up the gap, according to an e-mail cited by the plaintiff in her lawsuit. Whennone of the cash had been repaid by late October of 2013, according to the filing, Hanham, Wyse, and Fong alerted the fund’s advisory committee, “outlining the improper transactions and addressing the potential implications for investors.” The letter to the committee said, for one: “As a result of these transactions, the GP understands that… Fund [III] lacks sufficient callable capital to carry out its intended follow on investment program with the result that the value of… Fund [III]’s investment portfolio may be jeopardized unless… Fund [III] develops new sources of capital.”

Hanham claims in the lawsuit that she was fired a few days later after a “livid” Burrill found out about the letter to the advisory committee, and that the defendants took other steps to cause her “gratuitous” financial harm, such as shortchanging her on proceeds from the firm’s second fund.

That second fund, which invested $210 million between 2001 and 2006, according to court documents, gave Burrill one of the biggest biotech investment wins of the past decade, when Gilead Sciences bought the portfolio company Pharmasset for $11 billion in 2011. Burrill & Co. owned 5.7% of the company at the time, according to a proxy filing.

It was a shocking amount of cash, but Gilead turned Pharmasset’s lead drug, then just starting Phase III trials , into sofosbuvir (Sovaldi), which was approved for market in December 2013 and could change the way hepatitis C is treated. Sovaldi, with its $1,000-a-pill price tag, has also become a lightning rod for criticism from those who think drug prices have spiraled out of control.

With Burrill removed from Fund III, Hanham, Wyse, and Fong are now temporary stewards of the fund, working under the name BAR Capital.

Fong is also involved in Biomark, which took control of Burrill’s fourth fund late last year. At the head of Biomark is David Wetherell, who joined Burrill in 2011 from his own venture firm GBP Capital. At the time of the split, Burrill told Xconomy that the firm was “right-sizing.” Burrill has dabbled for years in other areas beyond venture, running a boutique investment bank, generating research reports and industry data, and publishing books and magazines. Always high-profile, Burrill is still on the schedule, as of mid-day Wednesday, to give his annual state-of-the-industry report at the BIO conference next week in San Diego.

Alex Lash is Xconomy's National Biotech Editor. He is based in San Francisco. Follow @alexlash

By posting a comment, you agree to our terms and conditions.

  • http://www.lacertabio.com Carlos N Velez/Lacerta Bio

    I’m amazed by this. Can this all really be true??

  • Oracle at Delphi

    Peo

  • Oracle at Delphi

    People are innocent until proven guilty

  • John

    Oracle from Delphi Ventures?