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Greed at center of TCW Group vs. Jeffrey Gundlach trial

Lawyers for the L.A. money manager tell jurors the ex-investment chief was fired because he plotted to destroy the company by setting up a rival firm with TCW's stolen secrets. Gundlach's lawyers say TCW wanted him ousted to keep hundreds of millions of dollars in client fees they would have owed him.

July 29, 2011|By Tom Petruno, Los Angeles Times
  • Jeffrey Gundlach, seen here after an interview in October at the Beverly Hills Hotel in Beverly Hills, launched his own firm, DoubleLine Capital, within 10 days after L.A. money manager TCW Group fired him in 2009. He was quickly joined by most of his team members at TCW, and has attracted ?$13 billion from investors in just 19 months.
Jeffrey Gundlach, seen here after an interview in October at the Beverly… (Jonathan Alcorn, Bloomberg )

Now on trial in an L.A. courtroom: a classic case of Wall Street greed.

That's the picture lawyers for both sides painted for jurors in the first round of the high-stakes court battle between L.A. money manager TCW Group and its former investment chief.

Jeffrey Gundlach, the star bond fund manager who was fired by TCW in December 2009, was ousted because he was plotting to destroy the company by setting up a rival firm with secrets stolen from TCW, TCW's lawyers said in their opening statement Thursday.

Although TCW paid Gundlach the equivalent of $20,000 an hour in 2009, "it wasn't enough" to keep him happy, said John Quinn, TCW's lead lawyer in the case.

Gundlach's lawyers, in turn, sought to portray TCW and its French parent, banking firm Societe Generale, as intent on getting rid of Gundlach to keep for themselves hundreds of millions of dollars in client fees they would have owed him.

What's more, Societe Generale had plans to sell or spin off TCW and didn't want Gundlach "standing in the way" of enriching itself, said Brad Brian, a lawyer for Gundlach.

The case, in Los Angeles County Superior Court, is an unusual airing of the financial industry's dirty laundry. Most such disputes are settled quietly, but this one has become so bitter that the two sides have been unable to reach an out-of-court deal.

In court Thursday, Gundlach and some of his deputies sat directly behind TCW Chief Executive Marc Stern. Neither side appeared to acknowledge the other.

The 51-year-old Gundlach became one of Wall Street's most acclaimed mortgage-bond investors over the last decade, and helped bring TCW tens of billions of dollars in business from institutional and individual investors.

When TCW fired him in 2009 the news rocked the investment world. Within 10 days of departing TCW, Gundlach launched his own firm, DoubleLine Capital. He was quickly joined by most of his team members at TCW, and has attracted $13 billion from investors in just 19 months.

TCW, which manages about $120 billion, sued Gundlach in January 2010, alleging that he and key aides conspired to steal massive amounts of TCW proprietary information to set up DoubleLine.

Gundlach countersued, accusing his former employer of firing him after 24 years at the firm to cheat him out of a huge chunk of promised income on client assets.

In his opening statement to the jury on behalf of TCW, Quinn described Gundlach as arrogant, greedy and bitter, and said the fund manager had referred to TCW Chairman Robert Day, 67, and Stern, 66, as "dumb and dumber." Gundlach was seen in the courtroom shaking his head in disapproval at some of Quinn's comments.

Quinn said Gundlach and key aides set out "to steal an entire business from TCW" by downloading the company's proprietary information in the fall of 2009 — customer account data, for example, and information on complex bond holdings.

Gundlach's plan was to leave TCW "in the lurch" by abruptly leaving with his team, Quinn said. When TCW discovered the plans, he said, it struck a deal to buy a rival money management firm to replace Gundlach, and announced that acquisition the same day it fired Gundlach.

But Brian told the jury that Societe Generale began pushing for Stern to dump Gundlach in the summer of 2009. That's why Gundlach and his team began to think seriously that fall about departing, Brian said.

Gundlach's lawyers don't dispute that his aides downloaded large amounts of TCW information before they left the firm to join DoubleLine. But Brian said the information was returned to TCW, or was deleted, and wasn't used to set up DoubleLine because it wasn't needed.

"We don't think there's any evidence they were damaged" by the data downloads, Brian said.

Quinn, however, described the alleged theft of data, including information used to analyze mortgage bonds, as the equivalent of stealing "the recipe for Kentucky Fried Chicken."

The civil trial is expected to last at least five weeks. The case brings two of L.A.'s premier law firms head to head: Quinn Emanuel Urquhart & Sullivan for TCW and Munger Tolles & Olson for Gundlach.

Gundlach and his attorneys have repeatedly accused TCW of engineering a public smear campaign against him. When TCW filed suit against him in 2010, it included allegations that hard-core pornographic magazines and DVDs and drug paraphernalia were found in his TCW offices downtown and in Santa Monica.

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 presiding Judge Carl J. West ruled last week that those accusations weren't relevant to the case, which he said was complex enough.

tom.petruno@latimes.com

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