The upcoming trial pitting money manager Jeffrey Gundlach against his former employer, TCW Group Inc., seems unlikely to benefit either side.
“Putting their dirty laundry into a public trial is not going to help anyone,” said Geoffrey Bobroff, an analyst who owns investment management consultant Bobroff Consulting Inc. in East Greenwich, R.I. “Let's hope cooler heads will prevail and this thing will go away.”
Two weeks away from the scheduled July 25 start of the trial, prospects for an out-of-court settlement appear dim. Legal sources familiar with the case say a court-mandated settlement conference in Los Angeles Superior Court on July 6 showed neither side was close to an agreement to avoid a trial.
Mr. Bobroff believes Mr. Gundlach and his firm, DoubleLine Capital LP, ultimately would have more to lose than TCW if they are found liable by a jury of charges of stealing trade secrets. TCW is seeking $200 million in damages from Mr. Gundlach, three former top TCW employees who joined DoubleLine, and the new firm itself.
In a countersuit, Mr. Gundlach alleges TCW owes him and some several dozen of his former team members at TCW more than $500 million in compensation. The countersuit claims are included in the upcoming trial.
Mr. Bobroff said a liability finding against Mr. Gundlach and DoubleLine could raise concern among institutional investors, many of which are said to be awaiting the outcome of the trial before taking a serious look at doing business with Mr. Gundlach's new firm.
“It could put a crimp on his business,” Mr. Bobroff said.
Michael Rosen, a founder of Angeles Investment Advisors, Santa Monica, Calif., agrees potential clients would be scared off if Mr. Gundlach and his associates were found liable for stealing trade secrets.
Plus, he said it's an open question of how much the monetary damages would be and how that would affect DoubleLine's operations.
“Would they have to close down the shop? There seems to be some uncertainty of the effect,” Mr. Rosen said.
If TCW loses and has to pay a large amount of compensation to Mr. Gundlach and his team, the loss would be embarrassing, but TCW would be in a better position to pay the claim than DoubleLine would be, according to a financial services official intimately acquainted with the operations at money management firms, who asked not to be identified.
He also noted that TCW's parent — Societe Generale Group — could provide financial help if needed.
A DoubleLine senior official, who requested anonymity, said, “The company doesn't expect to receive any court judgment that would result in damages that would seriously impact our business or threaten DoubleLine's business or the ability to serve investors.”