Money & Company

Tracking the market and economic trends
that shape your finances.

« Previous Post | Money & Company Home | Next Post »

Ousted fund manager Gundlach files countersuit against TCW

February 10, 2010 | 10:48 am

Star L.A. bond fund manager Jeffrey Gundlach on Wednesday filed a countersuit against his former employer, TCW Group Inc., alleging that the firm sought to oust him to avoid having to share up to $1.25 billion in fees from assets Gundlach managed.

The suit is the latest chapter in the ugly 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 until he was fired on 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 jumped ship to join him.

On Jan. 7 TCW filed suit against Gundlach and several other ex-TCW employees, alleging that they 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.

Gundlachj TCW also alleged that after firing Gundlach it found “inappropriate contraband” in his downtown and Santa Monica offices, including marijuana, drug paraphernalia and pornography.

In his countersuit Wednesday (the full document is here), 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 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.

“As time went on, these funds 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,” Gundlach says in the countersuit.

“No later than June 2009, TCW and its parent Societe Generale came to realize how enormous the compensation it had promised Gundlach and his group would prove to be as a result of the growing success of the Gundlach funds,” the suit says. “Not content to settle for its own agreed-to share of those future fees, however, TCW and Societe Generale 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.”

The suit, filed in state Superior Court, echoes public statements that Gundlach had made about TCW and its French bank parent Societe Generale in the weeks after he was fired. The suit contends that TCW sought to “alienate” Gundlach and to “undermine what TCW knew was the basis for his continued willingness to work at his long-time employer.”

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, which had overseen more than 60% of TCW's total assets, including complex mortgage-backed bonds that were Gundlach's specialty.

In a separate court document filed Wednesday in answer to TCW’s suit, Gundlach denied that his new firm, DoubleLine, was built on stolen TCW data. “As TCW was well aware when it filed this lawsuit, DoubleLine has adopted significant remediation measures designed to avoid DoubleLine’s use of any proprietary or confidential information that might have been in the custody of former TCW employees and to return any such materials to TCW,” DoubleLine says in the filing (go here for the full document).

In an e-mailed statement, 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.”

-- Tom Petruno

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