> news came out that they only sold their shares because of this.
Why would this be kept a secret? Why doesn't Sequoia, upon realizing their conflict of interest, say "Attention everyone: we have to sell this investment for conflict-of-interest reasons. We can't reasonably give you our board seat and other influence, just the financial state, so we will sell it for a large discount."
Why would any of that tarnish Sequoia's reputation or open them up to litigation? (I mean, other than the minor reputational hit they have already taken for not doing thorough due diligence, which is being revealed regardless.)