Jury deliberations began Wednesday in California Superior Court in the lawsuit and countersuit between TCW and its former star money manager and chief investment officer, Jeffrey Gundlach.
The six-week trial has offered an inside view of the soap opera events leading to the firing of Mr. Gundlach, and his launching a new firm, DoubleLine Capital.
In closing arguments Tuesday, lawyers for both TCW and Mr. Gundlach said they had been victims of secret schemes: TCW attorneys said Mr. Gundlach had plotted to destroy the asset management company while Mr. Gundlach’s attorneys said TCW officials had plotted to terminate the CIO.
The contrasting views in the closing arguments mirror the wide disagreements in the trial as to why Mr. Gundlach and several of his key associates were fired in December 2009.
TCW is accusing Mr. Gundlach of stealing trade secrets, violating his fiduciary duties, and interfering with the company’s contracts with other clients. It is seeking more than $500 million in damages. Mr. Gundlach’s countersuit claims TCW owes him $500 million in back and future incentive fees.
In his closing arguments, TCW attorney John Quinn said Mr. Gundlach and key associates were engaged in a plot to destroy TCW as part of a plan to form a rival asset management company. Mr. Gundlach’s new firm, DoubleLine Capital, opened within days of his being fired.
Mr. Quinn told the jury that Mr. Gundlach orchestrated a plan that had his associates stealing millions of pages of TCW trade secrets and other proprietary data over a period of months in the fall of 2009 to help with the formation of DoubleLine.
“They essentially stopped working for TCW and worked against TCW,” Mr. Quinn said.
Mr. Gundlach’s plot was so egregious, Mr. Quinn said, that TCW is seeking punitive damages for willful and malicious behavior by Mr. Gundlach and three of his top associates.
Mr. Gundlach’s attorney, Brad Brian, didn’t dispute that material was downloaded from TCW computers, saying, “that was not the right thing to do,” but he argued TCW’s attorneys did not establish that the material actually was used by DoubleLine and therefore did not harm TCW.
Mr. Brian began his closing arguments by showing a chart with photos of top TCW officials who had participated in a late June 2009 meeting, the first of what trial testimony showed was a series of meetings — dubbed “Project G” — held over the next few months to discuss Mr.Gundlach’s tenure at TCW and whether he would need to be fired.
Mr. Brian insisted that as of June 2009, TCW’s top officials already had decided to get rid of Mr. Gundlach.
Mr. Brian then played videotaped depositions of officials attending the June meeting, including TCW CEO Marc Stern and TCW President and founder Robert Day, denying having any memory of what was discussed at the meeting.
The depositions were taken before the trial started. Mr. Stern testified during the trial that he convened the “Project G” meetings to discuss whether Mr. Gundlach would need to be replaced. The TCW CEO had testified he was concerned about Mr. Gundlach’s erratic behavior and that Mr. Gundlach was looking for another job and would leave TCW suddenly, causing the company major financial damage.
But Mr. Stern has insisted there was no decision to actually terminate Mr. Gundlach until the fall of 2009.
Mr. Gundlach managed around 60% of TCW’s $100 billion in assets under management in mid-2009.
Mr. Brian said TCW began its “secret plan” to replace Mr. Gundlach by June 2009 because the company’s owner, French bank Societe Generale, felt that Mr. Gundlach’s presence would block a sale of TCW, that potential buyers would be scared away because one person was so essential to the company.
Mr. Brian also maintained that TCW was trying to save money by getting rid of Mr. Gundlach because the fixed-income team TCW acquired to replace Mr. Gundlach and his team — Metropolitan West Asset Management LLC — agreed to a smaller percentage of fee sharing than Mr. Gundlach and his mortgage-backed securities team were receiving.
But Mr. Quinn, TCW’s attorney, said any cost savings were offset by the $300 million purchase price for MetWest — and that TCW paid $100 million more than MetWest was valued — to ensure that it had a replacement in hand for Mr. Gundlach.
Mr. Quinn told the jury that Mr. Gundlach and key members of his mortgage-backed securities team were planning to leave TCW with little notice in early 2010 after they received their bonuses. That would have left TCW with no time to find a replacement, and allowed Mr. Gundlach to dictate the terms of future financial arrangements, including taking his clients at TCW and a large share of his fees with him, Mr. Quinn said.
TCW began termination proceedings against Mr. Gundlach on Dec. 4, 2009, formally firing him the next week. Within days of Mr. Gundlach’s termination, 45 TCW employees, including most members of Mr. Gundlach’s mortgage-backed securities team, followed him to his new firm.
The spectator section of the courtroom was packed with top TCW and DoubleLine officials Tuesday, including Mr. Gundlach and Mr. Stern. Other members of the asset management industry present included Howard Marks, founder and chairman of OakTree Capital Management, who helped DoubleLine get off the ground financially, and Robert Beyer, the former CEO of TCW.