Saturday, February 27, 2010

Gundlach Answers TCW, Files Own Case

Star bond-fund manager Jeffrey Gundlach fired another round at his former employer, claiming in a complaint filed Wednesday that TCW Group Inc. sought to deprive him of his share of fees generated by funds he managed.

TCW, a Los Angeles-based money manager, in December dismissed Mr. Gundlach, its chief investment officer, saying that he had threatened to leave and take key personnel with him. The firm later claimed in a lawsuit that Mr. Gundlach and his group had stolen proprietary information from the firm in laying the groundwork to launch a rival money-management firm, DoubleLine Capital.


Jeffrey Gundlach

Mr. Gundlach, who launched DoubleLine in the weeks after his dismissal, also filed an answer Wednesday to TCW's January complaint, saying the allegations were false and designed to interfere with his firm's business. He said in an interview that the TCW litigation had affected DoubleLine, adding that the dispute "extends the timeline of ramping the business."

The dispute has had fallout for both sides. Investors have yanked roughly $6 billion from TCW's flagship Total Return Bond Fund, which Mr. Gundlach managed, in the wake of his departure. That fund now has less than $5.9 billion in assets, down from roughly $12 billion. And since TCW claimed in its lawsuit that Mr. Gundlach not only stole its property but also kept drugs and pornography in his TCW offices, the bond-fund manager finds himself defending his character while trying to persuade investors to entrust their money to his new firm.

The bond-fund manager's complaint against his former employer claims that TCW agreed in early 2007 that Mr. Gundlach and his group would receive a chunk of the management and performance fees generated by funds they managed. Over time, these funds performed so well that the money owed under this fee-sharing agreement reached at least $600 million "and easily approaching $1.25 billion and beyond," the complaint said.

Mr. Gundlach's complaint charged that TCW schemed to deprive him and his group of this compensation, alienating the investment chief by marginalizing him and refusing to address his concerns about the future of the firm. After dismissing Mr. Gundlach, the complaint claims, TCW repudiated any obligation to pay the fees it had promised Mr. Gundlach and his group.

"We will address Mr. Gundlach's counterclaims in the appropriate venue, which is the court," TCW said in a statement. The firm added that "Mr. Gundlach's spin regarding the reasons for his termination are completely erroneous," noting that Mr. Gundlach earned $40 million last year and $135 million over the past five years.

In denying the allegations in TCW's complaint, Mr. Gundlach addressed the charge that he and his group had stolen proprietary TCW information. DoubleLine retained an outside firm to collect and return any computers or devices belonging to TCW, the court filing said, and took other steps to avoid using TCW's proprietary information.

In an interview last month, Mr. Gundlach said that he had no knowledge of anyone intentionally downloading information that was intended to be used at DoubleLine. In launching the new firm, Mr. Gundlach said, he and his group contacted clients by looking them up on Google.

In the January interview, Mr. Gundlach acknowledged he had made "very preliminary" inquiries into starting his own business while still employed at TCW. Able Grape LLC, the company that would ultimately become DoubleLine, was registered in Delaware on Oct. 23.

(By ELEANOR LAISE, from WSJ, February 27,2010)

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