TCW Group on Thursday accused its former chief investment officer, Jeffrey Gundlach, and his top associates of plotting to steal millions of documents from the money manager several months before they left in December 2009 to start their own firm.
“This was an inside job,” TCW attorney John Quinn said in opening arguments of a trial in California Superior Court in Los Angeles, pitting TCW against Mr. Gundlach and his new firm, DoubleLine Capital. TCW claims Mr. Gundlach stole trade secrets from the firm while working there; Mr. Gundlach has countersued, asking for more than $500 million in back wages.
Mr. Quinn said Mr. Gundlach, who was terminated from TCW in December 2009, engaged in a plot to form DoubleLine earlier that year after he was rebuffed in his efforts to become TCW's CEO. Mr. Gundlach's plot was not just to steal the information from TCW to help him with his new firm, Mr. Quinn said, but “to destroy TCW.”
Mr. Quinn said Mr. Gundlach had taken an amount of trade secrets and other confidential information that, if printed out, would equal as much as 2.5 times the height of the Empire State Building.
Mr. Gundlach’s attorney, Brad Brian, in his opening statement Thursday didn't deny that the documents were downloaded, but said none of the information ended up on DoubleLine’s systems. “We don't think there's any evidence they were damaged by the data downloads,” he said.
Mr. Quinn said TCW CEO Marc Stern was forced to take defensive action when he learned in early September 2009 of Mr. Gundlach's efforts to form his own firm.
Mr. Gundlach had to be replaced, Mr. Quinn said, because his mortgage-backed securities team had accounted for 60% of TCW's assets under management and 50% of its revenue. He said that's when Mr. Stern began negotiations to acquire Metropolitan West Asset Management, whose managers eventually replaced Mr. Gundlach's mortgage-backed securities team.
Mr. Quinn said he will present evidence that Mr. Gundlach was in secret negotiations with another fixed-income firm, Western Asset Management, as early as February 2009 to move his entire team there.
Mr. Brian told the jury that Mr. Gundlach only began planning for his own company after learning in June 2009 that that he could be terminated. “He wasn't sure, just as his group didn't know, what was going to happen,” Mr. Brian said. “He wanted to be ready in case he was fired.”
Forty-five of Mr. Gundlach’s associates at TCW left the firm to join him at DoubleLine.
Regarding the claim for back wages, Mr. Quinn said TCW owes Mr. Gundlach nothing, because he refused to sign a new contract in 2007 when his old one expired.
Mr. Brian said that his client had an oral contract in place with TCW, so it didn't matter that he didn't sign the contract.
Mr. Brian told the jury that Mr. Gundlach was fired so TCW could avoid paying hundreds of millions of dollars in performance fees he was owed because of the performance of his funds. The company felt not paying the performance fees would counter any losses from investors following Mr. Gundlach's departure, Mr. Brian alleged.
TCW has said it lost around $25 billion in assets under management, close to a quarter of the company’s AUM, in the months following Mr. Gundlach’s departure.