Sunday, January 01, 2012
TCW v. Gundlach: The Fight So Far
Reported by Neil Anderson, Managing Editor
In December 2009 TCW Group [see profile]
fired its chief investment officer, fixed income guru Jeff Gundlach
, and shortly thereafter Gundlach and his team launched their own firm, DoubleLine Capital [see profile]
. Gundlach and TCW were then locked in a legal dispute for the next two years. Read on to learn about the whole saga, and check back here for the latest trial transcripts and updates on the courtroom and media battle between the two Los Angeles-based mutual fund firms.
January 9: Gundlach talks about the now-settled suits, telling P&I that the case was a "non-issue" [read more].
December 29: DoubleLine and TCW announce that they've settled the dispute, though no details of the settlement are released [read more].
November 21: Attorneys for DoubleLine and TCW duke it out again over how much money, if any, the former owes the latter over the stolen trade secrets claim. The judge schedules another hearing on the subject for December 12 and says he'll rule on the issue by the end of January 2012.
Meanwhile, DoubleLine expert witness Michael Wallace counters TCW's $81.7-million royalty, offering his own estimate of the trade secrets' value: $2.3 million [read more].
October 25: TCW asks the judge to grant it $81.7 million in royalties from Gundlach and the DoubleLine team. The judge schedules the next hearing for November 21 [read more].
September 20: the judge schedules an evidentiary hearing for October 25. TCW will makes its case for receiving $89 million in trade secret damages and DoubleLine will make its case for receiving penalties and attorneys fees related to the $66.7-million back-pay awarded by the jury [read more].
September 19: P&I ponders the implications of the verdict [read more].
Reuters talks to attorneys for both sides about what's next [read more].
September 16: The jury delivers its verdict [see the verdict]:
finding Gundlach and his co-defendants guilty of fiduciary breach (but awarding TCW no damages) and of stealing trade secrets (leaving the damages up to the judge); and
awarding the DoubleLine crew $66.7 million in back pay [read more].
Sept. 14: The jury begins its deliberations [read more].
Sept. 13: Attorneys for TCW and DoubleLine make their closing arguments [see transcript]. The judge turns the case over to the jury [see the judge's instructions to the jury and the jury's verdict form] [read more].
Sept. 12: DoubleLine's attorneys call their final witness: Gundlach himself [see transcript]. Gundlach returned to the stand to counter testimony from Goldman Sachs investment banker Todd Owens about Gundlach's departure plans from TCW [read more].
Sept. 9: ex-TCW president Bill Sonneborn returns to the stand, claiming "it was obvious he [Gundlach] was an at-will employee" [see transcript] [read more].
September 8: DoubleLine president Philip Barach testifies that the decision to launch the firm wasn't made until December 5, 2009, the day after TCW fired Gundlach [see transcript] [read more].
Sept. 7: Gundlach himself returns to the stand, this time at the behest of his own lawyer [see transcript] [read more].
Sept. 6: DoubleLine's attorneys present e-mails from Societe Generale executives, discussing Gundlach's ouster many months before the actual deed [see transcript] [read more].
Sept. 1: Ex-TCW CEO Robert Beyer testifies, saying Gundlach never signed his contract with TCW and that Gundlach talked about possibly jumping to Wamco [see transcript] [read more].
August 31: TCW's attorneys call their final witness, ex-TCW president Bill Sonneborn, and rest their case [see transcript].
Attorneys for DoubleLine begin presenting their case. They show a video tape of a deposition of TCW chairman and founder Robert Day [read more].
Aug. 30: TCW's Michael Conn testifies that Gundlach claimed Pimco "would love to have" him [see transcript] [read more].
Aug. 29: Roger Brossy, a former TCW consultant who worked under Gundlach testifies that Gundlach told him that he was talking with Pimco about succeeding bond fund star Bill Gross [see transcript] [read more].
Aug. 25: TCW CEO Marc Stern explains the importance of keeping secret "Project G", the plan to fire Gundlach [see transcript].
TCW's Duke Heger describes a dip of $353 million in TCW subsidiaries' fees from certain closed-end funds after Gundlach talked with TCW clients after TCW fired Gundlach [read more].
Aug. 24: TCW CEO Marc Sterns returns to the witness box for a second day, revealing that he had Gundlach's e-mail monitored starting in September 2009 and claiming that Gundlach-inspired pressure from clients forced TCW to drastically cut fees on some closed-end funds [see transcript] [read more].
Jurors also saw an October 2009 e-mail where Stern claimed that Metropolitan West (MetWest) would only cost TCW 10 percent of fees, compared to 35 percent for Gundlach and his team.
And notes from an August 2009 meeting were presented, notes that included the phrase: "Unfortunately, we've had to terminate JG for cause."
Aug. 22: The judge discussed jury instructions with both side's attorneys [see transcript].
Aug. 18: TCW CEO Marc Stern takes the witness stand for the first time in the trial, defending his decision to fire Gundlach as necessary and his own (not that of TCW parent Societe Generale) [see transcript]. Stern says getting rid of Gundlach was like "cutting off your right arm" [read more].
Aug. 17: Gundlach has his final day on the witness stand, answering questions about CDOs, mutual fund performance and risk [see transcript]. The judge also chastised Gundlach and a juror for speaking to each other in an elevator [read more].
DoubleLine president Philip Barach claims TCW founder and chairman Robert Day said, minutes after Gundlach was ousted, that the firing stemmed from Gundlach making "too much money," not coming to Day's parties and not predicting the market bottom in March 2009.
In a video deposition, ex-TCW vice president and ex-DoubleLine chief financial officer Gregory Ward testified that Gundlach approached him, not vice versa, about setting up a new money manager, a couple of months before TCW fired Gundlach.
Aug. 16: Gundlach returns for third day of testimony. He says he started preparing for the worst in September 2009 after feeling "a crack of doom" after a meeting with Jacques Ripoll, head of global investment management services at TCW parent Societe Generale [see transcript]. Gundlach also testifies that he warned his employees to return DoubleLine data, got furious when co-defendant Jeffrey Mayberry returned data late, and even fired a junior portfolio analyst who didn't return some data [read more].
Aug. 15: On his second day in the witness box, Gundlach testifies that it was Western Asset Management Company (Wamco, a unit of Legg Mason) that called him in February 2009 and that he only talked to Wamco because he "was scared" about TCW parent Societe Generale's plans to sell TCW [see transcript]. Gundlach also talks about his September 2009 offer to buy a 51 percent stake in TCW for $350 million [read more].
Aug. 11: TCW calls Gundlach himself to the stand after showing jurors a video of clips taken from Gundlach's deposition [see transcript]. Gundlach denies ordering anyone to steal TCW's data and says he "never made the decision to leave" because he "loved TCW" [read more]. Gundlach was initially expected to begin his testimony the day before [read more].
Aug. 10: A "computer forensics expert" testifies that the code behind DoubleLine's and TCW's computer systems is "substantially similar," though some is "generic," Pensions & Investments' Randy Diamond reports [see transcript]. Yet the expert confirms that, of the 300,000 lines of code he checked, only 200 were from DoubleLine's system [read more].
Also on August 10, shares of TCW's French bank parent, Societe Generale, take a dive (falling more than 40 percent over 16 days) as rumors swirl about a possible downgrading of France's government debt. A spokesman for TCW tells MFWire.com that the rumors about SocGen "have no impact on TCW" [read more].
Aug. 9: Gary Shedlin, a former consultant who advised TCW, testifies that in October 2009 he told TCW CEO Marc Stern that TCW needed to fire Gundlach and buy a replacement team [see transcript] [read more].
Aug. 8: Cris Santa Ana testifies again [see transcript].
Aug. 4: DoubleLine chief risk officer and ex-TCW managing director Cris Santa Ana, a co-defendant, testifies that Gundlach asked for downloads of TCW data and says that DoubleLine's mortgage bond analyzing system looks similar to TCW's because it was built by some of the same people [read more].
Also on August 4, TCW equities chief investment officer Michael Reilly testifies that Gundlach acted "angrier, more vitriolic" in the months before getting fired [see transcript].
Aug. 3: Dolores Talamentes testifies that on December 4, 2009, the same day TCW fired Gundlach, she hid a hard drive in her bra and took it to then-TCW-managing director Cris Santa Ana (a co-defendant now at DoubleLine) [see transcript] [read more].
Aug. 2: DoubeLine communications director Barbara VanEvery, a co-defendant, testifies that, as Gundlach and his team feared being fired, she hired a real estate broker in September 2009 to search for new office space [see transcript]. She also reveals that Gundlach and two colleagues talked with Goldman Sachs in November 2009 about either getting a better deal from TCW or leaving, and she confirms that she was Gundlach's girlfriend at the time [read more].
Aug. 1: DoubleLine's Jeffrey Mayberry, a co-defendant, admits he took a flash drive with him when TCW fired him in December 2009 [see transcript]. He claims he "wanted to have the information to determine whether it was proper to use that information at a future endeavor" [read more].
July 28: Attorneys for TCW and DoubleLine present their opening arguments [see transcript].
Representing TCW, Quinn Emanuel Urquhart & Sullivan partner John Quinn tells the jury Gundlach and his team committed the equivalent of stealing "the recipe for Kentucky Fried Chicken".
On the DoubleLine side, Munger, Tolles & Olson partner Brad Brian counters by claiming TCW fired Gundlach because his fees were climbing "through the roof" [read more here and here].
July 25: The trial of TCW v. Gundlach begins in Los Angeles Superior Court at 10am with jury selection. Both sides offer the media hints of what's to come [read more]:
high-profile attorney and Fox News commentator Susan Estrich, who is outside counsel for TCW, tells CNBC that TCW may bring up a "very relevant" sexual relationship between Gundlach and a co-defendant; and
Fortune reports that TCW is fighting to keep the deposition of, and notes by, TCW corporate strategy chief Michael Conn out of the trial, as they suggest TCW's chiefs discussed firing Gundlach in August 2009, before they claim to have found out that Gundlach planned to jump ship; Estrich counters that the notes are "protected by attorney client privilege."
Here's the list of witnesses TCW and DoubleLine may call in the case [see list].
July 21: Los Angeles Superior Court Judge Carl West reportedly agrees to toss before trial TCW's claims about drugs, porn and sex toys allegedly found in Gundlach's office [read more].
July 6: Los Angeles Superior Court Judge Carl West consolidates TCW's claims against Gundlach and his colleagues into a single claim, stealing trade secrets, while keeping three of Gundlach's four counter-claims in the case. Quinn Emanuel partner Susan Estrich, a high-profile attorney and a political commentator for Fox News, talked to MFWire.com about the case on behalf of TCW [read more].
June 20: Bloomberg's Edvard Pettersson reports that the TCW v. Gundlach jury trial is scheduled to start on July 25 [read more].
January 20: Los Angeles Superior Court Judge Carl West reportedly tosses TCW's attempt to temporarily close the DoubleLine Funds Trust and take back the funds' gains, while leaving intact TCW's suit against Gundlach and his colleagues [read more].
December 8: the Los Angeles Times reports that the U.S. Justice Department is looking into the dispute between DoubleLine and TCW.
An outside attorney for TCW characterizes the government's actions as an "investigation of DoubleLine and its principals for trade-secret theft" [read more].
Gundlach counters by describing the investigation as one looking into TCW's participation in, and then withdrawal from, the U.S. Treasury's PPIP program [read more].
The Wall Street Journal also picked up on the Justice Department investigation [read more].
Dec. 1: TCW reportedly files a second suit, accusing DoubleLine Funds Trust of misappropriation of trade secrets and unfair competition [read more].
June 9: Sonya Morris profiles TCW in Morningstar's "Fund Spy" column, calling the firm a "healthier place without Gundlach" [read more].
May 3: In an interview with Pensions & Investments' Randy Diamond, TCW CEO Marc Stern reveals a new incentive plan under which TCW employees could gain up to 20 percent ownership in the firm [read more].
March 9: Fortune's Mina Kimes interviews Gundlach, who claims that TCW tried to oust him twice before firing him on December 4 [read more].
February 24: TCW completes its acquisition of Metropolitan West Asset Management. The combined firm now has $115 billion in assets under management [read more].
Feb. 17: Bloomberg offers an update on the TCW-Gundlach divorce so far [read more].
Feb. 11: Bloomberg claims that TCW Total Return Bond, which Gundlach had PMed, brought in almost $26 million in fees in 2009, more than half of TCW's mutual fund advisory fees [read more].
Feb. 10: Gundlach files a counter-suit (called a "cross-complaint" in California) against TCW, seeking damages of up to $1.25 billion and claiming his former employer "hatched a scheme to deprive Gundlach and his group of this lucrative compensation package and to confiscate the huge future fees that would be generated as the result of the skill and hard work of Gundlach and his group" [read more].
A TCW spokesman calls Gundlach's cross-complaint "completely erroneous" [read more].
January 19: Reuters chronicles Gundlach's split from TCW [read more].
Jan. 12: DoubleLine brings on board more ex-TCW staff, including PMs Bonnie Baha to lead global developed credit and and George Whiteley in U.S. government securities [read more].
Jan. 11: Gundlach sends a letter to his clients. "I have referred TCW's unfortunate litigation tactics to my legal team and expect this matter to be handled as a business dispute in the ordinary course" [read more].
Jan. 7: TCW files suit against DoubleLine, Gundlach and three other ex-TCW mortgage-backed securities executives -- Jeffrey Mayberry, Cris Santa Ana and Barbara VanEvery, all of whom TCW fired [see the 39-page complaint]. TCW accuses Gundlach and his colleagues of:
-breach of confidence;
-breach of fiduciary duty;
-intentional interference with contractual relations;
-intentional interference with prospective economic advantage;
-threatened and actual misappropriation of trade secrets;
-unfair competition; and
-keeping "inappropriate contraband … consisting of marijuana, drug paraphernalia … and a collection of 12 sexual devices, 34 hardcore pornographic magazines and 36 hardcore sexually explicit DVDs and videocassettes" in Gundlach's offices [read more].
DoubleLine calls TCW's accusations a "meritless, … false and hyperbolic," a "blatant attempt to damage DoubleLine's business and clients." DoubleLine says it will retaliate against TCW with a counter-suit [read more].
Gundlach calls TCW's accusations "shabby, groundless, and pointless," and "frivolous, pointless, irrelevant and untrue" [read more].
Jan. 6: Luz Padilla, former lead PM and managing director of TCW's emerging markets fixed income group, jumps to DoubleLine and brings along two of her senior research analysts, Mark Christensen and Su Fei Koo [read more].
Jan. 4: CEO Marc Stern says TCW will pull its $550-million UST/TCW Senior Mortgage Securities Fund from the U.S. Treasury's Legacy Securities Public-Private Investment Program and liquidate the fund, "in light of the recent changes in the portfolio management team" [read more].
December 31: TCW founder and chairman Robert Day reportedly resigns from the board of Societe Generale, the French bank that owns TCW [read more].
Dec. 22: TCW promotes sales chief Chuck Baldiswieler to chief of its mutual fund business, after the departure of Ron Redell [read more].
Dec. 18: Ron Redell, former head of TCW's mutual fund business, joins Gundlach to launch and lead DoubleLine's own line of mutual funds [read more].
Dec. 16: Reuters claims Newport Beach, California-based fixed income giant Pimco has brought in "billions" of dollars from clients withdrawing money from TCW after Gundlach's departure [read more].
Dec. 14: 10 days after TCW fired him, Gundlach, Philip Barach and more than 30 other ex-TCW employees launch DoubleLine, with Oaktree Capital Management as a minority investor. Like Oaktree and TCW, DoubleLine is based in the City of Angels [read more.
Dec. 13: MarketWatch columnist Chuck Jaffe gives TCW a "Lump of Coal Award" for firing Gundlach [read more].
Dec. 11: Tad Rivelle, Gundlach's successor as PM of the TCW Total Return Bond Fund, hosts a conference call with investors. Investors reportedly withdrew $2 billion from the fund on December 7 and 8 [read more].
Dec. 9: The Los Angeles Times reports that Gundlach plans to be PMing again in "30-40 days", either by starting his own firm or joining an existing one.
The U.S. Treasury suspends a $1-billion fund TCW raised as part of the Public-Private Investment Program (PPIP) to purchase banks' toxic assets [read more].
Dec. 8: The Los Angeles Times reports that three more TCW managing directors -- Joel Damiani, Vincent Fiorillo and Joseph Galligan -- left TCW.
All told, the Times claims that 15 of TCW's 65-person fixed income team have left so far and that shareholders withdrew $1 billion of TCW Total Return Bond's $12 billion on December 7 [read more].
Dec. 5: Two of Gundlach's lieutenants, Philip Barach and Louis Lucido, reportedly quit TCW [read more].
Dec. 4: TCW simultaneously fires Gundlach, removes the "interim" from interim CEO Marc Stern's title and unveils a deal to buy rival Los Angeles-based money manager Metropolitan West Asset Management for an undisclosed sum. TCW promotes Michael Reilly to CIO of equities and taps MetWest CIO Tad Rivelle as the next CIO of high-grade fixed income. MetWest will bring $30 billion in assets under management and 115 employees to TCW [read more].
To read more about the events leading up to Gundlach and TCW's divorce, read MFWire.com's timeline [see MFWire.com, 1/11/2010].
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