G. Steven Burrill, the CEO and founder of Burrill & Co., a San Francisco financial firm specializing in biotechnology and life sciences investing, was ousted from control of a $283 million venture capital fund earlier this year by big institutional investors that cited willful or reckless misconduct related to unauthorized payments, according to documents recently filed in California State court in San Francisco.
Thirteen investors of Burrill Life Sciences Capital Fund III, including the Treasury of the State of North Carolina, Oregon Investment Fund, Unilever ,Monsanto MON +0.38% and Celgene CELG -0.3%, removed the general partner of the fund in March, court documents show. In their notice of removal, the investors in the venture capital fund said that Glass Ratner Advisory Capital Group, which had inspected the books and records of the fund, had reported that the venture capital fund paid $19.2 million to various designees and affiliates of the general partner in excess of management fees that had been earned. In addition, the investors said that the general partner had failed to make at least $453,929 of capital contributions that were required under the partnership agreement.
The notice of removal and related documents were filed last week in California state court by Ann Hanham, a former managing director of Burrill & Co., who sued Burrill and his financial services firm for fraud. Burrill could not be reached for comment. He did not respond to an email and phone calls requesting comment. The main phone number of Burrill & Co., appears to have been disconnected.
Burrill has been a fixture in the San Francisco biotech investing community for decades, founding Burrill & Co., in 1994 and raising some $1 billion in various investment funds over the years. He has served on the board of several companies, including AliveCor and Depomed DEPO +1.89% and was chairman of others like Pharmasset and BioImagene. Burrill hired Hanham, who declined to comment, in 2000, but their relationship “took a nosedive” in September 2013 when Burrill told Hanham she had placed “‘one foot in the grave,’” according to the complaint Hanham filed.
According to the 28-page-complaint, in early September 2013, Hanham and two other managing directors at Burrill’s firm, Roger Wyse and Bryant Fong, “discovered that a substantial portion of the money that had been raised from Fund III limited partners had gone missing.” Hanham claims nearly $20 million had been diverted from Fund III to Burrill or various Burrill entities over a period of several years ostensibly to prepay for management services not yet rendered and to fund unspecified and unauthorized loans.
Hanham filed with the court a letter that she wrote with Wyse and Fong in September to Burrill and Victor Herbert, Burrill & Co.’s chief lawyer, demanding they disclose the transactions to investors and resign from all positions affiliated with Burrill Life Sciences Capital Fund III, including the fund’s general partner. Hanham also claims that she demanded Burill immediately arrange for the return of the missing funds. Instead, according to the lawsuit, Hanhan was pressured to pursue other business models and means of generating revenue so that the improper transactions would not need to be disclosed to investors. “We can earn our way out of trouble,” Burrill wrote to Hanham and Wyese in a September email, according to the complaint. “What we need is revenue to solve our problems n just timely enough to meet any capital calls which might be needed…. Each of u are part of the solution.”
In October, Hanham, Wyse and Fong sent a letter to the investors of Burrill Life Sciences Capital Fund III that stated the fund had called excess capital from investors for years that were disclosed in the fund’s annual audited statements as “prepaid expenses and other receivables” and as a result the fund did not have sufficient callable capital to carry out its investment program.
According to the complaint, Burrill fired Hanham in November when he learned about the letter she sent to the investors. Investors in Burrill Life Sciences Capital Fund III representing at least two-thirds of its investor base issued in February a notice of removal of the general partner, which took effect in March. Since then, Hanham, Wyse and Fong have formed BAR Capital that is now serving as the general partner of the fund on an interim basis and managing its investments.
In December, another associate of Burrill, David Wetherell, left Burrill & Co., reportedly took control of Burrill Capital Fund IV and formed Biomark Capital to manage it. At the time, Wetherell and Burrill werereportedly tight-lipped about the reasons behind Wetherell’s exit. Wetherell did not return a call seeking comment.
The improper fees at Burrill’s venture capital fund that are alleged in court documents come as the Securities & Exchange Commission is focusing on hidden and unauthorized fees at private equity funds. Andrew Bowden, the SEC’s director of the office of compliance inspections and examinations, said in May that “a private equity adviser is faced with temptations and conflicts with which most other advisers do not contend.” Bowden also added: “We have seen that these temptations and conflicts are real and significant.”