TCW sues former bond investment chief Jeffrey Gundlach
The bitter split between Los Angeles money management giant TCW Group and former executive Jeffrey Gundlach turned nastier Thursday, as TCW sued Gundlach, alleging that he stole confidential information and used it to launch a rival firm.
Gundlach, ousted as investment chief of $110-billion-asset TCW on Dec. 4, schemed for months with top lieutenants to exit the firm with vast amounts of proprietary data, the lawsuit asserts.
TCW also sought to portray the 50-year-old Gundlach as unfit to remain a company officer. The firm said it found marijuana, pornographic DVDs and magazines and “sexual devices” in his TCW offices on the day he was terminated.
Gundlach’s new firm, DoubleLine Capital, quickly fired back, asserting that TCW’s suit had no merit and accusing the company of resorting to “gutter” tactics. DoubleLine said it planned to file a counterclaim against TCW.
The public divorce has stunned L.A.’s normally low-profile money management industry. TCW’s suit, filed in Superior Court in Los Angeles, reflects the high stakes for the 38-year-old company: Gundlach, considered one of the country’s sharpest investors in complex mortgage-backed bonds, could drain away TCW’s assets if many of the firm’s big investors opt to move their accounts to DoubleLine.
Already, about 40 of Gundlach’s 65 TCW investment team staffers have defected to DoubleLine, which set up shop Dec. 14.
After firing Gundlach, TCW suffered heavy cash outflows from its flagship mutual fund, TCW Total Return Bond, which he had managed. The fund’s assets fell to $6.2 billion by Dec. 31 from $12 billion just before Gundlach was fired.
In its suit, TCW claims damages of more than $200 million and seeks to impose a “constructive trust” on DoubleLine, claiming any assets and profit.
When it terminated Gundlach, TCW said it did so because he had been threatening to leave and take key personnel with him. The company the same day announced that it would buy a smaller L.A. money management firm, Metropolitan West Asset Management, to take over Gundlach’s duties.
Within a few days of when he was ousted, Gundlach vowed to quickly return to the money management business by forming his own firm.
TCW’s 39-page suit asserts that that had been Gundlach’s plan for months, even though, the suit says, he had assured the firm throughout the fall that he had no intention of leaving.
“The sudden appearance of [DoubleLine] has been hailed by the financial press as a testament to Gundlach’s organizational skill and financial savvy,” the suit says. “In fact, DoubleLine is entirely the product of defendants’ theft of TCW property, fraud and breach of fiduciary duty.”
TCW alleges that Gundlach, working with other TCW staffers who have joined him at DoubleLine, began conspiring last year to copy the equivalent of 9 million pages of TCW documents related to its trading systems, client information, documentation on 20 million mortgages and other data.
On Sept. 30, a Gundlach lieutenant began working with a commercial real estate agent to find 24,000 square feet of office space, the suit says.
“In e-mails, [Gundlach] declared ‘war’ on TCW and solicited TCW employees to pledge their allegiance to him,” the suit says. “As defendants’ conspiracy developed, co-conspirators (and Gundlach himself) began to refer to Gundlach in e-mail exchanges as ‘The Godfather’ or ‘The Pope.’ ”
The suit names three DoubleLine employees besides Gundlach and includes 50 additional unnamed defendants, presumably DoubleLine employees to be identified later.
Gundlach told The Times on Dec. 14 that any TCW information on the private computers of TCW employees who joined DoubleLine had been given back to the company.
In its statement Thursday, DoubleLine said TCW’s suit was “a blatant attempt to damage DoubleLine’s business.”
The suit, which makes only a brief mention of marijuana, pornography and unnamed sexual devices allegedly found in Gundlach’s TCW offices, says that his “possession of such inappropriate materials in TCW’s office premises was in blatant disregard to TCW’s clearly stated employment rules and regulations.”
The allegations are intended to show that TCW will pull out all the stops to prevail in the battle to protect its franchise, said Michael Abelson, a partner at Los Angeles law firm Abelson Herron, which isn’t involved in the case.
“It’s meant to send a message to anyone who would even think of assisting him that they’ll drill down to the nth level in their background and personal history,” he said.
But those allegations have little legal relevance, Abelson said. “I’m not aware of any law against possessing sexual devices or hard-core magazines,” he said. “It’s left purposely vague to let the reader’s imagination run wild and to think the worst of Mr. Gundlach.”
Gundlach, a math whiz who joined TCW as a bond analyst in 1985, became one of the firm’s stars over the last decade, attracting tens of billions of dollars in assets from pension funds and other investors eager to tap his expertise. The firm named him chief investment officer in 2005.
TCW’s suit says Gundlach earned $134 million in the last five years, including $40 million in 2009.
Early last year, rumors began to circulate on Wall Street that Gundlach was unhappy at TCW. The firm’s parent, French banking titan Societe Generale, had announced that it was planning to get out of the money management business and expected to sell or spin off TCW within five years.
Gundlach has publicly acknowledged that he became upset about TCW’s direction and wanted to have more say about the firm’s future. But he has insisted that he never threatened to leave TCW.
