A former consultant for TCW Group testified Tuesday that he had told the company's CEO that Chief Investment Officer Jeffrey Gundlach needed to be fired and a replacement bond management firm acquired before Mr. Gundlach left on his own to form a rival firm.
Gary Shedlin's testimony in the California Superior Court trial that pits TCW against Mr. Gundlach, its former star money manager, portrayed that TCW's very survival was at stake if the firm did not have a replacement company lined up and Mr. Gundlach decided to bolt.
TCW would have been at “significant risk” and the firm “could implode” because its value as a business entity would have dropped significantly without Mr. Gundlach if a replacement firm was not acquired before he left, Mr. Shedlin, former chairman of the global financial institutions group at Citibank Capital Markets, testified he wrote in a letter to TCW CEO Marc Stern in October 2009.
Mr. Gundlach and his top associates were fired in December 2009 after TCW officials accused them of downloading millions of documents, including detailed records for 24,000 clients. By then, TCW had acquired a new bond manager, paying $300 million for Metropolitan West Asset Management.
Mr. Gundlach then formed a rival firm, DoubleLine Capital LP, and 45 of his former team members at TCW joined his new firm.
TCW is accusing Mr. Gundlach of stealing trade secrets to help him start his own firm. Mr. Gundlach has countersued and is seeking more than $500 million in compensation he said is owed to him under an oral contract.
Mr. Shedlin told the jury he was originally hired in June 2009 to do a strategic review of TCW's operations. Part of the review involved interviewing Mr. Gundlach, whom Mr. Shedlin said he found to be extremely “arrogant” and “brash.”
Mr. Shedlin said Mr. Gundlach claimed during that interview that without him, TCW would not exist, and that he should be the CEO. Mr. Gundlach threatened to take all of his clients to another firm if that did not happen and said there would be nothing left of TCW, Mr. Shedlin testified.
In other testimony Tuesday afternoon, Eric Arentsen, a TCW managing director, testified that Mr. Gundlach told him in early September 2009 that “after we get our bonuses, we’re out of here. … It’s going to be a giant f--- you to Marc Stern.”
Mr. Arentsen, a longtime member of the TCW mortgage-backed securities team, said Mr. Gundlach had always been critical of top management at the company, but his anger increased during 2009.