Burrill partner claims ousted chief diverted $20M, then scrambled to hide it

G. Steven Burrill

A few days from now, G. Steven Burrill is scheduled to give his big state-of-the-industry speech at BIO, an annual rite for many in biotech who have come to closely follow his views on industry trends. But if this event comes off as planned, the audience is going to be buzzing about the explosive charges leveled against the high-profile biotech investor in a lawsuit filed by one of his former partners at the firm.

As first reported by Forbes, Burrill was removed from control of his $283 million life sciences fund after some of the top institutional investors accused him of mismanaging the cash. The lawsuit lays out the claims he faces.

Longtime R&D exec Dr. Ann Hanham joined Burrill back in 2002. In her lawsuit against Burrill, filed June 13 in California state court in San Francisco, she says everything went well until last fall, when she and two colleagues, Roger Wyse and Bryant Fong, found that $20 million from Burrill's Fund III had been "diverted to Burrill and/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."

Investment committee chair Victor Hebert and CFO Helena Sen, two executives at the firm, apparently knew about the diversion of cash, Hanham alleges. And she wrote a letter, included in the lawsuit, spelling out that the money was badly needed to pay for the fund's expenses, new investments and follow-on investments. Cash reserves, she claims, had fallen to less than $500,000. 

Dr. Ann Hanham

After agreeing to repay the money, she continues, Burrill pushed the partners to come up with a new set of deals that could generate enough cash to plug the gap and keep the transactions hidden from its investors. 

"We can earn our way out of trouble with a different business model," Burrill wrote in an email, according to the lawsuit. "If each of us can get 2-3 transactions done in the next year, all our troubles will be behind us. What we need is revenue to solve our problems n just timely enough to meet any capital calls which might be needed."

But in October of last year, none of the money had been returned and Burrill still hadn't informed the investors, so Hanham and her colleagues told the fund's advisory committee. Hanham was fired November 1 as Burrill followed up on his earlier threat to her that she had "one foot in the grave."

There's more. Hanham claims that Burrill didn't pay her for services rendered, essentially stopped her from selling stock in diaDexus before the stock price tanked on bad data and also that Burrill owes her for other work as well.

In her LinkedIn profile Hanham notes that she's now managing partner at Bar Capital Management. The home page for Burrill & Co., meanwhile, is not accessible today.