Bloomberg News

TCW, Gundlach Settle Suit Over Firing, Trade Secret Theft Claims

January 03, 2012

Dec. 30 (Bloomberg) -- TCW Group Inc. and Jeffrey Gundlach, its former chief investment officer, said they settled a lawsuit over Gundlach’s firing in 2009 and allegations he stole trade secrets to set up his own firm.

TCW and the company founded by Gundlach, DoubleLine Capital LP, “jointly announce that they have settled all claims between and among themselves as well as DoubleLine Funds Trust, Jeffrey Gundlach, and other individuals,” TCW said yesterday in a statement. “The terms of the settlement are confidential and the parties will not discuss them.” DoubleLine separately issued a statement confirming the agreement.

TCW, the Los Angeles-based unit of Societe Generale SA, and DoubleLine Capital LP, the asset-management firm Gundlach started within weeks after TCW fired him in 2009, In September, a jury awarded Gundlach and three other former TCW employees who had joined his firm $66.7 million in unpaid wages.

The Los Angeles jury also found that Gundlach had breached his fiduciary duty to TCW, without awarding the firm any damages. California Superior Court Judge Carl West was to decide what “reasonable royalties,” if any, TCW was entitled to based on the jury’s finding that Gundlach had misappropriated trade secrets.

TCW sued Gundlach, 52, in January 2010, after more than half of its fixed-income professionals joined DoubleLine. TCW said at trial that it suffered $566 million in damages.

‘Through the Roof’

Gundlach, who had worked at TCW for 25 years and was named Morningstar’s Fixed Income Manager of the Year in 2006, countersued, saying TCW fired him to avoid having to pay management and performance fees for the distressed-asset funds his group managed and that went “through the roof.” Gundlach sought about $500 million.

``We're pleased that an agreement has been reached and that matter is now behind us,'' Peter Viles, a TCW spokesman, said. ``TCW is well positioned to continue the strong momentum and growth it has established over the past two years.''

The jury heard more than six weeks of testimony as the two sides provided conflicting views of Gundlach’s falling out with TCW Chief Executive Officer Marc Stern in 2009, which ended with Stern’s buying Metropolitan West Asset Management LLC to run TCW’s fixed-income group and firing Gundlach in December 2009.

Stern testified that he became suspicious of Gundlach after a series of September 2009 meetings and instructed TCW’s in- house lawyer to start monitoring the e-mail of Gundlach and others in his group. The investigation showed some of Gundlach’s subordinates were downloading TCW’s proprietary information and looking for office space, Stern said.

Gundlach denied that DoubleLine used any of TCW’s proprietary software systems and data.

DoubleLine’s lawyers argued that Stern started looking to replace Gundlach as early as June 2009, about the time Stern returned to active management. Gundlach and other senior managers at TCW had opposed Stern’s return from retirement and wanted the firm to be run by a management committee instead.

60 Percent

Gundlach had negotiated for him and his group to receive 60 percent of the performance fees for the distressed-asset funds he set up in 2007 and 2008. The funds invested in mortgage- backed securities that were downgraded and dropped in value with the collapse of the U.S. housing market.

As the funds performed better than expected, Paris-based Societe Generale and TCW wanted to replace Gundlach with a less expensive asset manager, DoubleLine’s lawyers said. TCW argued that Gundlach wasn’t entitled to management and performance fees from the funds after his firing.

Societe Generale, France’s second-biggest bank, is weighing whether to put TCW Group up for sale, people familiar with the matter who didn’t want to be identified because it wasn’t public said in November. One option was a management-led buyout of the business, said two of the people at the time.

The case is Trust Co. of the West v. Gundlach, BC429385, California Superior Court, Los Angeles County (Los Angeles).

--With assistance from Sree Vidya Bhaktavatsalam in Boston. Editors: Peter Blumberg, Michael Hytha

To contact the reporter on this story: Edvard Pettersson in Los Angeles at epettersson@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net


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