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TCW sues mutual fund trust set up by ex-investment chief Gundlach

December 1, 2010 |  8:55 pm

L.A. investment firm TCW Group Inc., embroiled in a bitter year-old legal battle with its former star bond fund manager Jeffrey Gundlach, on Wednesday launched a lawsuit against the trust that operates Gundlach’s DoubleLine mutual funds.

The suit, filed in L.A. Superior Court, includes the same basic allegations TCW made in its original case  against Gundlach, filed in January. In that suit TCW accused Gundlach of conspiracy, unfair competition and theft of TCW data.

The new suit seeks to implicate the trustees of the rival mutual funds Gundlach set up after TCW fired him on Dec. 4, 2009.

Gundlach Gundlach launched the DoubleLine Funds in April, and his flagship fund, DoubleLine Total Return Bond, has generated a gain of 16.7% since then, far exceeding the performance of its peer funds. The fund holds $3.8 billion in assets, and Gundlach -- considered one of Wall Street’s sharpest investors in mortgage-backed bonds -- now oversees about $6.8 billion in all.

Business divorces like the one between TCW and Gundlach normally are settled out of court, but the two sides don’t appear to be moving closer to ending their fight. A jury trial of the original case is scheduled for July.

TCW, which manages $111 billion in assets, said it ousted Gundlach after 24 years at the firm because he had threatened to leave and take his staff with him. Within two weeks of his termination a year ago Gundlach set up DoubleLine Capital, and about 40 members of his 65-member bond team at TCW quickly left to join him.

In its January suit, TCW alleged that Gundlach and his team engaged in “wholesale theft of vast quantities of TCW proprietary information” before they left, and couldn’t have formed DoubleLine so quickly without it.

Gundlach, 51, countersued in February, alleging that TCW ousted him to avoid having to share as much as $1.25 billion in fees from assets he oversaw.

TCW says it told the trustees of the DoubleLine funds in April that TCW had “incontrovertible forensic evidence” that Gundlach and his team had stolen the equivalent of nine million pages of TCW proprietary information. By agreeing to hire Gundlach as the funds’ investment manager, the trust and trustees became co-conspirators, TCW alleges.

“After months of discovery, we believe the evidence against the defendants is overwhelming, and we look forward to proving our case in court,” said Steve Madison, an attorney for TCW.

The individual trustees named in the suit couldn’t be reached for comment.

DoubleLine’s response to the suit, from a spokesman: “TCW has made false claims against DoubleLine for about a year. Their case is not going well. This latest move by TCW is redundant and meaningless.”

-- Tom Petruno

Photo: DoubleLine Capital Founder Jeffrey Gundlach. Credit: Alex Gallardo / Los Angeles Times