Finance

A biotech VC accuses his Proskauer lawyers of bungling a hedge fund deal, costing him ‘hundreds of millions’

  • Venture capitalist Robert Adelman has accused his ex-lawyers at Proskauer of ‘legal malpractice.’
  • Adelman says Proskauer’s drafting error forced him to sell his 27.5% stake in Avoro Capital.
  • Proskauer has denied the claims and called Adelman’s lawsuit “unfortunate.”
  • See more stories on Insider’s business page.

A life sciences venture capitalist claims he was shut out of the meteoric rise of his former partner’s hedge fund because his ex-lawyers at Proskauer Rose bungled the deal.

Dr. Robert Adelman, the managing partner of venBio, says he missed out on the success of Avoro Capital, a hedge fund spun out of venBio in 2016. Lawyers at Proskauer made a drafting error in fund documents that forced him to sell his Avoro stake in 2019, Adelman alleges. His state-court lawsuit against the Big Law firm hasn’t previously been reported.

Avoro was up 19.5% for the year through last August and grew 60% in 2019, the year Adelman was pushed out, according to Institutional Investor. One of its top holdings was Immunomedics Inc., which was purchased by Gilead Sciences last year for $21 billion, generating huge profits for Avoro.

Proskauer’s terms gave Behzad Aghazadeh, the hedge fund’s managing partner, the authority to declare a “strategic transaction” that would result in the redemption of Adelman’s 27.5% stake in the fund, according to the March 2020 lawsuit. Adelman says Aghazadeh took advantage of that provision in a 2019 deal involving HealthQuest Capital.

“Proskauer’s legal malpractice obliterated Dr. Adelman’s interest in the very hedge fund that he co-founded,” the lawsuit said. It named Sarah Cherry as the Proskauer partner involved, though she’s not a defendant.

Adelman is seeking “hundreds of millions” of dollars from Proskauer, according to court documents. He’s represented by the Boston trial lawyer Lisa Arrowood and a team from Susman Godfrey.

Proskauer claims that Adelman knew what kind of concession he was making but made it anyway because Aghazadeh was a “star” employee. In a statement, Proskauer called Adelman “an experienced and sophisticated investor” who was directly involved in negotiations with Aghazadeh, and said his lawsuit was “unfortunate.”

“His remorse over a deal that he knowingly agreed to does not, however, support a claim against Proskauer,” the firm said. “We are highly confident that when the facts are developed, they will prove that we met our professional responsibilities in all respects.”

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The firm is represented by John Villa of Williams & Connolly, a top legal malpractice defense lawyer, and others from Goulston & Storrs. Their early effort to get the lawsuit dismissed was rejected by a judge in November.

In court documents, the firm has argued it’s not responsible for Adelman’s missed opportunity, and that if anyone is to blame, it’s Aghazadeh. Proskauer said Adelman hasn’t given a straight answer to the question of whether he has reason to sue Aghazadeh. Lawyers for Aghazadeh have called Proskauer’s strategy desperate.

Avoro owned about 26.3 million shares of Immunomedics and stood to make about $2.3 billion at Gilead’s purchase price of $88 per share, according to a securities filing. In 2019, Avoro said that it had spent a mere $140 million to acquire 21 million of those shares, or less than $7 each.

Aghazadeh recently spent $16 million to acquire two Brooklyn properties with plans to build a large mansion, the New York Post reported.

In its most recent quarterly filing, Avoro reported over $5 billion in assets under management. Its top holdings included a $996 million stake in Mirati Therapeutics, an oncology company, and a $658 million stake in Horizon Therapeutics, whose pipeline includes treatments that target rare and rheumatic diseases.

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