Former TCW President William Sonneborn testified Wednesday that he told CEO Marc Stern in August 2009 that the company's star money manager, Jeffrey Gundlach, should be fired because he “had gotten close to the point of becoming a disease or a cancer at the company.”
Mr. Sonneborn's testimony came before TCW rested its case Wednesday in its almost $400 million lawsuit in California Superior Court against Mr. Gundlach and DoubleLine Capital, claiming stolen trade secrets from TCW were used to start DoubleLine.
Mr. Sonneborn, now partner and head of KKR Asset Management, called Mr. Gundlach the most “arrogant” money manager he had ever met. Mr. Sonneborn already had left TCW when Mr. Stern sought his advice in August 2009.
Mr. Sonneborn said he appointed Mr. Gundlach as chief investment officer in 2005 and said it originally was a good move for TCW, because Mr. Gundlach increased TCW's visibility and helped mentor younger managers of various TCW investment teams.
But about six months after his appointment as CIO, Mr. Gundlach started focusing less on the mentoring and became more arrogant, he said.
Mr. Sonneborn said Mr. Gundlach wanted to make TCW a fixed-income shop, eliminating all other investment teams. Mr. Sonneborn said he rejected that advice because the most successful money management companies have a diversified investment portfolio.
The second portion of the trial started Wednesday afternoon, with attorneys for Mr. Gundlach and DoubleLine pressing their case that TCW trade secrets were not used to start DoubleLine and that Mr. Gundlach was fired in December 2009 because TCW didn't want to pay him and his team more than $500 million in incentive fees and future and back compensation.
Testimony in the trial could be over by Sept. 7, according to Brad Brian, attorney for Mr. Gundlach and DoubleLine; he said he expects to call the last witness that day.
One of DoubleLine's first witnesses Wednesday, TCW Chairman and founder Robert Day, testified in a videotaped deposition that he and Mr. Stern did not want to fire Mr. Gundlach. “We never wanted to replace Jeffrey,” he said.
But the videotape also showed Mr. Day could not remember any details of meetings about Mr. Gundlach's tenure at TCW. He repeatedly answered “I can't remember” to questions about ongoing discussions that according to previous testimony were held by TCW senior officials to replace Mr. Gundlach.
Mr. Day’s also testified he didn’t know of the meetings dubbed “Project G”, which were convened by Mr. Stern starting in June 2009 to deal with possibly replacing Mr. Gundlach.
However, Mr. Day said that he talked daily with Mr. Stern and had lunch with him once a week.
Mr. Day also said that it was in TCW’s interest to keep Mr. Gundlach because of the financial benefit he brought to the company. He said Mr. Gundlach had a terrific track record as a manager but was “unstable,” which led to his termination.