A long list of prominent investors, including hedge fund star Bill Ackman and the managers of the Sequoia Fund, made billions of dollars in paper gains as Valeant Pharmaceuticals soared over the past five years.
Now they are watching those profits melt away.
Valeant plummeted as much as 40% on Wednesday after a short seller published a report accusing the company of an Enron-like strategy of recording fake sales by using phony customers. At the low point, the stock was down more than 66% from an intraday peak of $263.81 on Aug. 6, according to data compiled by Bloomberg. The stock rallied in the afternoon, closing at 118.61, down 19.2% from Tuesday's close.
Valeant issued a news release Wednesday afternoon rebutting the short seller's accusations, calling it an “erroneous report.”
Ruane, Cunniff & Goldfarb, which runs the $8.1 billion Sequoia Fund, owned 33.9 million Valeant shares as of June 30. The firm's one-day paper loss would be as much as $953 million. Pershing Square Capital Management, which owned 19.5 million shares, suffered a one-day loss of as much as $548 million. The calculations assume the firms haven't changed their holdings since the end of the second quarter.
The Disney Savings Plan Master Trust, Burbank, Calif., had $538 million, or about 9% of its total $6.1 billion assets, invested in the Sequoia Fund as of Dec. 31, according to the most recent Form 5500 filing of the defined contribution plan. The Washington Post's 401(k) plan had about $17 million of its total $285 million invested in the Sequoia Fund, also as of Dec. 31.
Larry Goldsmith, vice president, pensions and investments at The Walt Disney Co., could not be reached for comment by press time.
Hedge fund manager John Paulson's firm, Paulson & Co., owned 9 million shares as of June 30, translating into a one-day loss of as much as $253 million.
Valeant has been a popular stock among hedge fund managers. Thirty-two hedge funds counted Valeant among their top 10 holdings at the end of the second quarter, with the stock accounting for 10% of the portfolios of those funds on average, according to a report by Goldman Sachs Group on Aug. 19. In the five years ended June 30, Valeant shares rose more than elevenfold.
Fran McGill, a spokesman for Pershing Square, declined to comment. Messages left for Ruane Cunniff and Paulson & Co. weren't immediately returned.