Jeffrey Gundlach strikes back at TCW in court
Star L.A. bond fund manager Jeffrey Gundlach filed a countersuit Wednesday against his former employer, TCW Group Inc., alleging the firm ousted him to avoid having to share as much as $1.25 billion in fees from assets Gundlach oversaw.
The suit is the latest chapter in the bitter divorce between TCW, one of L.A.'s biggest money managers, and Gundlach, who was a 24-year veteran of the firm and its chief investment officer when he was fired Dec. 4.
TCW, which manages more than $100 billion in assets, said it terminated Gundlach because he had threatened to leave and take his staff with him. Within days of his firing Gundlach in fact set up a new firm, DoubleLine Capital. More than 40 of his former TCW staffers soon joined him.
The two sides now are in a high-stakes battle over clients: TCW is trying to hold on to investors who put cash into Gundlach-managed bond portfolios at TCW; Gundlach is hoping to lure those clients to DoubleLine.
TCW launched the first legal salvo on Jan. 7 when it sued Gundlach and several other ex-employees, alleging they had engaged in “wholesale theft of vast quantities of TCW proprietary information” before leaving, and used the data to set up DoubleLine as a rival bond fund manager. Gundlach denies those allegations.
TCW also sought to question Gundlach’s character, alleging that after firing him it found “inappropriate contraband” in his offices, including marijuana and pornography.
In his countersuit filed Wednesday in state Superior Court, the 50-year-old Gundlach asserts that his split with TCW was all about money. He said that in 2007 he negotiated a deal with the firm’s top executives governing the management and performance fees he and his team would earn from existing and new bond funds.
The contract was oral, not written, Gundlach said, but he asserted that “the essential compensation terms . . . appear in various documents in TCW’s possession.”
The countersuit says that the bond portfolios Gundlach managed for TCW “performed so well that the anticipated future fees that would be owed under this arrangement became enormous, reaching at least $600 million and easily approaching $1.25 billion and beyond.”
By last June, the suit says, TCW and its parent firm, French bank Societe Generale, “came to realize how enormous the compensation it had promised Gundlach and his group would prove to be” and “undertook a scheme to get rid of Gundlach so they could appropriate for themselves the share of those fees promised to Gundlach and his group.”
In an interview, Gundlach said the estimate of as much as $1.25 billion in fees due his team contained “no puff,” and that he believed the team would have earned that amount within a few years assuming that the performance of the funds met expectations.
Gundlach, whose specialty is mortgage-backed bonds, had overseen about $70 billion of TCW’s assets.
His suit alleges breach of contract and seeks payment of the fees he says he’s owed.
A TCW spokeswoman said the firm would “address Mr. Gundlach’s counterclaims in the appropriate venue, which is the court. We have no intention of deflecting attention away from the serious misconduct and breach of fiduciary duties of which he and his co-defendants are accused.”
The spokeswoman said Gundlach’s “spin regarding the reasons for his termination are completely erroneous. As is well documented, this comes from an individual who earned $40 million dollars last year and $135 million over the past five years.”
In a separate document filed Wednesday in answer to TCW’s suit, Gundlach denied that his new firm, DoubleLine, was built on stolen TCW data. He said DoubleLine had taken “significant remediation measures designed to avoid use of any proprietary or confidential information that might have been in the custody of former TCW employees.”
On the same day TCW fired Gundlach the firm agreed to buy rival L.A. bond fund manager Metropolitan West Asset Management to replace Gundlach and his team. Met West executives now are managing most of TCW’s bond assets, including its flagship mutual fund, TCW Total Return Bond.