So what?
Surely that's the question institutional investment executives are asking now that the trial pitting TCW Group Inc. against Jeffrey Gundlach and associates has ended.
Certainly the case will go down in history as the most expensive and most protracted trial in the history of money management.
Each side won something.
The jury awarded Mr. Gundlach — TCW's former chief investment officer and star bond manager who was fired and then started rival DoubleLine Capital LP — $66.7 million in unpaid wages, to be divvied up among Mr. Gundlach and three other former TCW executives who were fired and then joined DoubleLine. He had sued TCW, seeking about $500 million in compensation.
The jury found Mr. Gundlach liable for stealing trade secrets from TCW, breaching his fiduciary duty to TCW and interfering with TCW client contacts. No damages were awarded to TCW for the fiduciary breach and interference; the judge will decide damages for stealing trade secrets at a later date.
But, again, so what? What difference will it make?
The $66.7 million in compensation to the four DoubleLine executives isn't going to break TCW, which has the pockets of parent Societe Generale SA to dip into if need be.
And it's too soon to know whether the amount the judge awards TCW for the trade secrets violation will be high enough to endanger the financial future of DoubleLine, which, after all, is not even 2 years old.
But assuming the damages are manageable, DoubleLine seems poised to start winning mandates from institutional investors waiting for the trial to end before seriously considering DoubleLine.
If the damages don't “threaten Mr. Gundlach's ability to maintain his firm, I would venture to say that this opens up avenues for new institutional business” for DoubleLine, said Steven F. Charlton, a partner and director of consulting services with investment consultant NEPC LLC, Cambridge, Mass. “His performance has been very good.”
Geoffrey H. Bobroff, president of money manager consultant Bobroff Consulting Inc., East Greenwich, R.I., said neither side comes out of this case looking like a winner, but “as long as he continues to put up the numbers, (Mr. Gundlach should enjoy) ample opportunities to attract institutional investors.”
Moustapha Abounadi, a director and head of fixed-income research at investment consultant Rogerscasey Inc., Darien, Conn., said the lawsuits kept Rogerscasey from recommending DoubleLine to clients, even though a number of them asked about the firm.
Now that the trial is over, DoubleLine should move onto investors' radar screens, Mr. Abounadi said. Still, after a legal battle that seemed motivated at times as much by personal animosities as by business considerations, Rogerscasey will move cautiously to make sure no further court challenges are looming before recommending either firm, he said.
David Morton, a partner with Rocaton Investment Advisors, Norwalk, Conn., said if the outcome of the trial doesn't impose a material financial burden on DoubleLine, that would clear a major hurdle to considering the firm based on performance.
According to data from Morningstar Inc., Chicago, the firm's biggest mutual fund — the $10.1 billion DoubleLine Total Return Bond fund — has delivered an 8.76% gain year to date Sept. 15, putting it in the top 1% among 1,208 competing strategies.
By contrast, the $5.3 billion TCW Total Return Bond fund, which the Metropolitan West Asset Management LLC team took over after Mr. Gundlach was booted at the end of 2009, has delivered a 4.63% return year to date Sept. 15, putting it in the 64th percentile of the same pool of competitors. For the 12-month period through Sept. 15, however, the gap is narrower, with DoubleLine in the top percentile and TCW in the 14th percentile.
One of the cardinal rules of investing is to put aside emotions. Still, if any institutional investors choose to ignore that rule, Mr. Gundlach — and therefore DoubleLine — wouldn't fare well.
Among money management and pension executives, Mr. Gundlach's testimony during the six-week trial demonstrated that his ego was as much on trial as his actions. Words like “toxic,” “arrogant” and “cold” were used in private conversations to describe the way Mr. Gundlach was perceived through news coverage of his testimony.
Indeed, Matthew Lane-Warren, foreman of the 12-member California Superior Court jury, said in an interview with Pensions & Investments that the jury found Mr. Gundlach arrogant. He added, however: “It's not a crime to have a personality that most people feel is objectionable.”
As the consultants noted, the size of the hit DoubleLine will take for the trade secrets violations is key.
In its legal filings, TCW asked for $89 million in “reasonable royalties.” The judge in the case, California Superior Court Judge Carl West, has slated a Sept. 21 conference with attorneys for TCW, Mr. Gundlach and DoubleLine to discuss scheduling of future proceedings.
TCW had maintained throughout the trial that much of the millions of documents and data that Mr. Gundlach ordered key associates to take from TCW in the fall of 2009 helped DoubleLine get off the ground quickly after Mr. Gundlach's firing in December of that year.
DoubleLine attorney Brad Brian said he would have no comment on the trade secret finding against Mr. Gundlach or whether DoubleLine will appeal any of the jury's findings.
“We are very pleased that the jury agreed with us that neither Jeffrey Gundlach nor any of our clients did anything that resulted in monetary harm to TCW,” he said in a statement to P&I. “We're also pleased that they awarded our clients the wages that were owed to them.”
The jury's decision to award Mr. Gundlach and three of his associates $66.7 million of the $500 million in compensation sought by Mr. Gundlach can be appealed by TCW.
Susan Estrich, an attorney for TCW, said no decision has been made on whether to appeal the award.
In an interview with P&I, Mr. Gundlach said he was pleased with the monetary award: “It's 67 to zero,” he said smiling. Asked about the potential trade secret liabilities, Mr. Gundlach said the “jury clearly split the baby.” He wouldn't say whether the trial helped DoubleLine get additional business. “DoubleLine is growing at a rapid rate,” he said.
TCW also could pursue another charge against Mr. Gundlach if it chooses. The company tried to add a charge against Mr. Gundlach before the trial started in July that he violated federal computer fraud and abuse statutes.
Those laws have been primarily used by lawyers prosecuting hackers who enter company computer systems, but over the last year there has been increasing use of it in cases involving trade secrets, said Elizabeth Rowe, a law professor at the University of Florida in Gainesville and an expert in trade-secret law.
Mr. West dropped the charge from the trial but said TCW could file a separate action later.
TCW spokesman Peter Viles said he couldn't comment on whether the company would pursue a separate action.
