Jury renders split decision in TCW-Jeffrey Gundlach case
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Star bond fund manager Jeffrey Gundlach was found liable Friday for breaching his fiduciary duty to his former employer, asset management giant TCW Group Inc., which fired him in December 2009.
But in what essentially can be viewed as a win for Gundlach, a Los Angeles jury found no harm to TCW in that breach and awarded the firm no financial compensation.
Further, the jury found that TCW must pay $66.7 million to Gundlach and his three co-defendants for failure to pay wages owed them before leaving the money-management firm to set up a rival company in 2009.
[Updated at 9:51 a.m.: After the jury was dismissed, a smiling Gundlach was asked how he felt about the decision. ‘Great,’ he said. ‘It’s 67-to-zero,’ he added, referring to the wages owed to him and his co-defendants.
[TCW’s general counsel, Michael Cahill, said in a statement that the firm was ‘gratified by the jury’s verdict, which speaks directly to the principles at the heart of this case -- integrity, honesty and trust.’]
On a separate issue, the jury of five women and seven men agreed with TCW’s claim that Gundlach had misappropriated the company’s trade secrets in setting up a rival firm in 2009, causing harm to TCW. Any damages on that claim will be decided by Judge Carl J. West. TCW is asking for $89 million.
The verdicts were read in a packed courtroom, with Gundlach and many of TCW’s top officers present. The six-week civil trial in Los Angeles County Superior Court had wrapped up on Tuesday afternoon. Jurors took just two days to decide on 37 separate issues on the verdict form.
TCW, which manages about $120 billion in assets for clients, fired Gundlach in December 2009 in a shakeup that rocked the mutual-fund world. One month later the company sued Gundlach, alleging that he and key aides conspired against the firm and stole TCW proprietary information to set up a new fund-management business, DoubleLine Capital, almost overnight.
Gundlach, 51, then countersued and accused TCW, the parent of Trust Co. of the West, of ousting him after 24 years at the firm to cheat him out of a huge chunk of promised income.
The two lawsuits were combined into one trial, which began in late July and has been closely watched on Wall Street.
The trial was an unusual airing of the financial industry’s dirty laundry. Most such disputes are settled quietly to prevent potentially embarrassing or damaging information from becoming public. But in this one there was so much bad blood between the two sides that they were unable to reach an out-of-court deal.
TCW alleged that Gundlach, a bond-market genius who had managed more than 60% of TCW’s total assets, was secretly planning all through 2009 to abandon the company. He allegedly wanted to take his entire bond team with him to another firm, or one that he created, and leave TCW in the lurch. If he had succeeded, he ‘likely would have destroyed TCW,’ TCW attorney John Quinn said Tuesday in closing arguments. Instead, TCW said it used the element of surprise to strike first, firing Gundlach and acquiring another bond firm on the same day to take over the assets Gundlach had managed.
Gundlach denied that he wanted to leave TCW, and alleged that Chief Executive Marc Stern and the company’s French parent, banking firm Societe Generale, were plotting in 2009 to oust him in a cost-saving move. Gundlach’s attorneys pointed repeatedly during the trial to notes taken at a meeting of TCW executives in August 2009 referring to the idea of firing him.
Gundlach wanted nearly $500 million in damages from TCW, claiming that he would have earned that much through this year based on his contract with the company at the time of his ouster. As one of Wall Street’s most acclaimed investors in mortgage bonds, Gundlach had attracted tens of billions of client dollars to TCW over the last two decades. He and TCW had shared management fees earned on the assets. TCW calculated that Gundlach’s compensation since 1991 had totaled $239 million.
During the trial, Gundlach estimated his personal net worth at about $90 million, some of which he has sunk into an extensive collection of modern art.
For much of the six weeks of testimony Gundlach found his personality on trial. TCW lawyers and witnesses described him as arrogant, disloyal and even a “disease” on the company. The jury was told that Gundlach encouraged his staff to refer to him as ‘the Pope’ and ‘the Godfather.’
Gundlach has acknowledged his large ego, but has said his investment results spoke for themselves.
His new company, DoubleLine Capital, has attracted $16 billion in assets in less than two years, despite TCW’s legal onslaught against him. The DoubleLine Total Return Bond fund, Gundlach’s flagship mutual fund, has risen 11.7% over the last 12 months, beating 99% of its peer funds, including the one he left behind at TCW.
Barron’s magazine earlier this year crowned Gundlach ‘King of Bonds.’
Before the trial, Gundlach and his attorneys accused TCW of engineering a public smear campaign against him. When TCW filed suit against Gundlach in 2010, it included allegations that hard-core pornographic magazines and DVDs and drug paraphernalia were found in his TCW offices downtown and in Santa Monica.
Gundlach said at the time that TCW was resorting to ‘gutter tactics.’ Later, he said that whatever the company found in his offices were ‘vestiges of closed chapters of my life.’
TCW wanted to have the jury hear about the alleged porn and drugs, but presiding Judge Carl J. West ruled in July that those accusations weren’t relevant to the case, which he said was complex enough.