With weeks of testimony still expected in the case of TCW vs. Jeffrey Gundlach, the first few days of the trial provided a glimpse into the animosity that existed between TCW Group management and its mortgage-backed securities star.
Just who was out to get whom in 2009 — whether TCW officials plotted to oust Mr. Gundlach or Mr. Gundlach schemed to break away from TCW — is one of the questions the jury in California Superior Court in Los Angeles will have to determine.
TCW, which filed the original lawsuit, is charging that Mr. Gundlach and his associates stole trade secrets as part of a plot to move the mortgage-backed securities business to a new firm, DoubleLine Capital LP. TCW is asking for $375 million in damages.
Mr. Gundlach, who was TCW's chief investment officer and a member of its board, is maintaining he and his team are entitled to more than $500 million in back wages. He contends he was fired because TCW didn't want to pay up and because he opposed the return of Marc Stern, the company's former president, to the CEO position in late May 2009.
With their opening arguments and first witnesses, TCW attorneys painted a picture of Mr. Gundlach as a man with an enormous ego who spent months, while employed by TCW, working secretly to set up the rival firm.
Attorneys for DoubleLine portrayed Mr. Gundlach as the victim of a plan to deprive him of incentive fees he had earned because of the huge success of some of his mortgage-backed securities funds. They said French bank Societe Generale, TCW's owner, decided it wanted to reduce its costs and bring in a cheaper replacement, forcing Mr. Gundlach out.
TCW lawyer John Quinn said Mr. Gundlach called himself “the pope” and “the godfather” and refused to meet with investment prospects he considered too small — like a possible $400 million investment from Novartis AG — because “this sounds like too small a group to have an audience with the pope.”
He said Mr. Gundlach referred to Mr. Stern and TCW founder and Chairman Robert Day as “dumb and dumber.”
But the name-calling wasn't all on one side, according to Brad Brian, attorney for DoubleLine. In his opening arguments, he said Mr. Stern had his own name for Mr. Gundlach, citing an e-mail in which the CEO had called Mr. Gundlach, “King Jeffrey.”
One of the new claims made by TCW in the trial is that CEO Robert Beyer resigned in May 2009 in part because of the difficulty of dealing with Mr. Gundlach.
In one incident, Mr. Quinn said, Mr. Gundlach walked around the TCW trading floor waving a Federal Express envelope, claiming he had an offer to join fixed-income rival Western Asset Management Co.
When Mr. Beyer confronted Mr. Gundlach about whether he was planning to join the firm, Mr. Quinn said that Mr. Gundlach responded, “Well, maybe I will.”
Mr. Beyer warned Mr. Stern that the toughest problem he would have if he returned to TCW would be dealing with Mr. Gundlach, Mr. Quinn told the jury.
Indeed, the conflict between Messrs. Stern and Gundlach started before Mr. Stern assumed the leadership of TCW.