TCW-Gundlach trial ends in split verdicts
He was cast as the epitome of Wall Street greed, but in the end a jury sided with star money manager Jeffrey Gundlach’s claim that he wasn’t paid enough.
In a bitter court battle that pitted Gundlach against his longtime employer, Los Angeles investment giant TCW Group Inc., jurors delivered verdicts Friday that left both sides claiming victory.
The panel largely agreed with TCW’s side of the case, yet ordered the firm to write a $67-million check to Gundlach and three lieutenants for back pay, while TCW’s own demand for damages was denied.
The verdicts close out a trial that had fascinated the financial industry because it aired the kind of dirty laundry that Wall Street usually tries to keep hidden: allegations of secret deals, back-stabbing, stealing, lying and cheating.
At the center was Gundlach, a 51-year-old investment whiz who has been dubbed the “King of Bonds,” and earned more than a quarter of a billion dollars for his money management prowess at TCW from 1991 until he was fired in December 2009.
TCW, parent of Trust Co. of the West, said it fired Gundlach because it had evidence that he was plotting to abruptly abandon the firm and set up a rival business. The company, which manages $120 billion in assets for institutional and individual investors, said it believed that Gundlach’s goal was to destroy the firm and lure away clients to his new business, which he formed within two weeks of his ouster.
A month after firing him, TCW sued Gundlach for breach of duties and for allegedly stealing massive amounts of TCW’s proprietary information on his way out. The company’s initial suit also included allegations that hard-core pornographic magazines and DVDs and drug paraphernalia were found in Gundlach’s TCW offices downtown and in Santa Monica.
Gundlach quickly countersued, alleging TCW dumped him to cheat him out of a huge amount of fees he would have earned on clients’ funds he oversaw at the company.
Both cases were combined in a single civil trial that began in late July in Los Angeles County Superior Court.
For much of the six weeks of testimony, Gundlach found his outsized personality on trial. TCW attorneys and witnesses described him as arrogant, disloyal and even a “disease” on the company. The jury of five women and seven men was told that Gundlach routinely berated his own staff and encouraged them to refer to him as “the Pope” and “the Godfather.”
In interviews Friday, some jurors said they were put off by Gundlach’s demeanor and tales of his conduct at TCW, but that they set those feelings aside and followed what they believed was the law in the case, specifically regarding the employment terms that Gundlach said TCW had breached in ousting him.
“The verdict killed me,” said juror Miriam Gomez, a 20-year-old student in L.A. “If you steal proprietary information, by no means should you be rewarded for it. He got lucky. The only reason he was rewarded anything was based on the law. If I had my way, he wouldn’t have gotten a penny.”
In a civil case, jury decisions are reached when at least nine of 12 panelists agree. There were some dissents on a number of the decisions in the TCW case.
After the verdicts were read, a smiling Gundlach was asked how he felt. “Great,” he replied. “It’s 67-to-zero,” he added, referring to the wages owed to him and his three codefendants.
Gundlach has always been unapologetic about his ego and management style, and 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.
What’s more, Gundlach’s attorneys noted that nearly all of his TCW bond team members remained loyal to him, bolting the firm to join him at DoubleLine soon after he was fired.
During the trial, TCW tried to paint Gundlach as a real-life Gordon Gekko, the greed-consumed central character of the 1980s movie “Wall Street.” TCW’s lead lawyer, John Quinn, told jurors that Gundlach sought to betray TCW in search of ever-greater financial reward.
Referring to Gekko, Quinn told jurors in closing arguments Tuesday that “you may wonder, does that kind of thing exist in the world? You now know.”
But the jury in effect bought only partway into TCW’s claims. The panel agreed that Gundlach had breached his duties to TCW and conspired against the company, but they didn’t find that TCW was harmed by those actions.
“There seemed to be sufficient evidence that TCW was sort of planning on firing him,” said juror Kristy Hanson, a 30-year-old singer-songwriter. “If some of the damage to TCW is self-inflicted, it’s difficult to find a monetary amount of harm to them.”
All along, Gundlach said that although some of his TCW team members downloaded client information and other data and brought it to DoubleLine, all of it was either purged or returned, and none of it was used in building DoubleLine.
“We are very pleased that the jury agreed with us that neither Jeffrey nor any of our clients did anything to hurt TCW,” said Brad Brian, an attorney representing Gundlach and his codefendants in the case.
But Gundlach, who has estimated his net worth at about $90 million, may still incur a financial penalty: The jurors decided that Gundlach had misappropriated TCW’s information, and on that allegation they believed TCW was harmed. Damages on that claim will be determined by Judge Carl J. West in a decision that could take months. TCW is asking for $89 million, according to Susan Estrich, one of the company’s attorneys.
“We are gratified by the jury’s verdict, which speaks directly to the principles at the heart of this case — integrity, honesty and trust,” said Michael Cahill, TCW’s general counsel. “The jury found that each of the defendants violated these principles.”
Although Gundlach and codefendants Barbara VanEvery, Cris Santa Ana and Jeffrey Mayberry will share the $67-million pay award, Gundlach wanted nearly $500 million in damages from TCW. He claimed he would have earned that much through this year based on the performance of the bonds he had purchased for TCW clients before his ouster.
The jury decided that he was entitled only to pay allegedly withheld in the final few months that he worked for TCW.
Before the trial, Gundlach and his attorneys accused TCW of engineering a public smear campaign against him. Referring to the pornography and drug allegations, 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 Judge West ruled in July that those accusations weren’t relevant to the case, which he said was complex enough.
Throughout the trial, Gundlach denied that he wanted to leave TCW, a place he said he “loved.” He said he was merely making contingency plans because he believed that TCW founder Robert Day, Chief Executive Marc Stern and the company’s French parent, banking firm Societe Generale, were plotting in 2009 to dump him in a cost-saving move. He also had worried aloud about Societe Generale’s long-term plans for the business.
At one point during testimony, Gundlach launched into a mocking French accent, recounting some of the comments by Societe General Chief Executive Frederic Oudea in a conference call with TCW managers in 2008.
“The asset management business — I don’t know I even want to be in it. I will be deciding,” Gundlach quoted Oudea as saying.
TCW’s attorneys alleged that Gundlach had become openly hostile to Day and Stern in 2009, referring to them as “dumb and dumber.”
But some jurors said they never were swayed by what they heard about Gundlach’s sharp tongue.
“I don’t care how much he walked around ranting. It’s immaterial,” said juror Glen Abraham, a 56-year-old MTA employee from Sunland.
“The guy was brilliant, and he wanted his own empire. Now he has it,” Abraham said. “If TCW fired him, they’re responsible for the separation.”
