Fired TCW Chief Investment Officer Jeffrey Gundlach testified Wednesday he would not have filed suit demanding $500 million in back and future incentive fees, but was forced into action after TCW Group sued him.
“Hopefully, we can move forward without any litigation,” Mr. Gundlach said was his point of view after he was fired from TCW in December 2009.
Mr. Gundlach filed his countersuit in February 2010. TCW sued Mr. Gundlach and several key associates, alleging they stole trade secrets that they used to open rival money management firm DoubleLine Capital within days of being terminated.
Much of the testimony on Wednesday in the trial in California Superior Court in Los Angeles focused on Mr. Gundlach’s claim that TCW fired him to deprive him of the incentive fees.
TCW maintains that Mr. Gundlach never signed a five-year renewal contract that was presented to him in 2007 and, therefore, he is not owed any money.
In testimony, Mr. Gundlach said Wednesday he agreed to a new contract with TCW on May 25, 2007, finalizing the terms in a handshake with then-company President William Sonneborn and CEO Bill Beyer.
E-mails submitted as evidence by Mr. Gundlach’s attorneys show top TCW officials commending Mr. Gundlach on the new deal, which increased fee-sharing for Mr. Gundlach and his team members, but required him to pay his fixed-income team’s administrative costs.
Mr. Gundlach said he thought he had a deal even though he never signed the contract.
He said in testimony Wednesday, and TCW officials have also said, TCW officials started paying Mr. Gundlach under terms of the new contract that May, which he said aided his conclusion that a new deal was made.
Mr. Gundlach said he never signed the contact because he wanted to see a lawyer to clarify a few points he didn’t understand, such as an arbitration clause. “It was something I was always going to do next week,” Mr. Gundlach said.
But Steve Madison, TCW’s lawyer, introduced into evidence e-mails in which Mr. Gundlach wrote that he did not have a contract.
The first e-mail in August 2009 was to another TCW employee, Marc Carlson. Mr. Carlson had been asked by a consultant, Angeles Investment Advisors, to determine the status of Mr. Gundlach’s contract with TCW. Angeles was representing the $15.3 billion San Francisco City & County Employees’ Retirement System, which was apparently considering an investment with Mr. Gundlach’s team.
“Here is the truthful answer. Jeffrey Gundlach is not under contract with TCW,” Mr. Gundlach wrote to Mr. Carlson.
Mr. Gundlach insisted he did not mean what the e-mail had said. He said the answer was designed so the consultant “would go away.”
Mr. Gundlach said he had some unpleasant dealings with the consultant in the past but did not go into detail in his testimony Wednesday, so he did not want to do business with the firm.
In the second instance, Mr. Gundlach was shown by Mr. Madison a Dec. 7 article by Douglas Appell, a reporter with Pensions & Investments. The article appeared three days after TCW began termination proceedings against Mr. Gundlach.
In the story, Mr. Gundlach said he did not have a contract with TCW.
Mr. Gundlach insisted on the witness stand that he never made such a statement to the reporter. Mr. Madison presented to Mr. Gundlach an e-mail from the reporter to Mr. Gundlach. The e-mail contained notes of the interview with Mr. Gundlach and asked Mr. Gundlach to contact the reporter if the facts weren’t accurate.
Mr. Gundlach insisted he did not open the e-mail until months later.
Testimony at the trial has shown that Mr. Gundlach had negotiated with WAMCO and bragged that PIMCO wanted to hire him to replace investment guru Bill Gross.
Mr. Gundlach testified Wednesday that he only talked to WAMCO, so he decided to deny to Mr. Appell that he had talked to any of the firms.
Mr. Gundlach said any plan to go to WAMCO would have been part of a negotiated settlement and TCW would have received a percentage of the fees.
TCW CEO Marc Stern had testified at the trial that he was looking for a replacement for Mr. Gundlach because of concerns that Mr. Gundlach, TCW’s star money manager, would suddenly leave, severely jeopardizing TCW’s finances. Despite never contacting a lawyer, Mr. Gundlach said he always thought he had agreed to the new contract.
Mr. Gundlach said he created the new fee-sharing arrangement to foster a positive atmosphere among members of his mortgage backed-securities team at TCW.
“It makes life better when you have happy employees,” he said.
He credited happy employees as the reason most members of his mortgage-backed securities team followed him to DoubleLine.