William H. Gross filed a lawsuit against PIMCO and parent company Allianz SE, alleging he was wrongfully driven out as the firm's chief investment officer by executives seeking financial gain.
“Driven by a lust for power, greed and a desire to improve their own financial position and reputation at the expense of investors and decency, a cabal of PIMCO managing directors plotted to drive founder Bill Gross out of PIMCO in order to take, without compensation, Gross's percentage ownership in the profitability of PIMCO,” said the lawsuit, filed Thursday in California state court in Santa Ana.
The lawsuit adds Mr. Gross was skeptical of other executives' desire to transform Pacific Investment Management Co. into a “high-risk, high-fee asset management company that invested in riskier equities and leveraged real estate investments, as opposed to the stable bonds that built the firm's reputation.”
Mr. Gross claims his “wrongful” and “illegal” ousting denied him “hundred of millions of dollars in earned compensation.”
Mr. Gross was set to receive a roughly $250 million bonus for 2014, with the majority of that due in the third and fourth quarters. Because he left the firm five days short of the end of the third quarter, PIMCO refused to pay him the proportionate amount, despite that being their custom for partially completed quarters, the lawsuit alleges.
All proceeds from the lawsuit will go to charity, including the PIMCO Foundation, said a spokesman for Mr. Gross in an e-mail.
Mr. Gross is worth $2 billion, according to the Bloomberg Billionaires index.
"This lawsuit has no merit and our legal team will be responding in court in due course. Our focus remains on our clients and their investment portfolios,” said Michael Reid, a PIMCO spokesman, in an e-mail Thursday.
PIMCO continues to rank as one of the world's largest money managers, but it's still smarting from the so-called bond king's departure last year, reputation-wise as well as in terms of assets under management.
PIMCO's third-party net assets not associated with PIMCO parent Allianz were $1.15 trillion on June 30, down 21% from Sept. 30, 2014, just days after Mr. Gross left. Since Mr. Gross left on Sept. 26, 2014, to join the much-smaller Janus Capital Group as a portfolio manager, the Total Return Fund has dropped from about $200 billion in assets to slightly less than $100 billion as of Aug. 31. At its peak in April 2013, the fund held $293 billion in assets
Greg Fitchet, investment officer at the $2.2 billion City of Phoenix Employees' Retirement System, said the retirement system will monitor the situation, but doesn't see it affecting its relationship with PIMCO. “We'll keep an eye on it, obviously. Any impact on (the system's) current investment right now (isn't) apparent to me,” Mr. Fitchet said in a telephone interview.
He added: the lawsuit is “really more background noise. The lawyers will take care of it.” The pension fund has about $150 million invested with PIMCO in a total return separate account.
Matthew R. Rice, principal and chief investment officer at investment consulting firm DiMeo Schneider & Associates, said in an e-mailed statement, “Given Bill's bitter and chaotic departure from PIMCO, a lawsuit along with some mudslinging wasn't unanticipated. We'll monitor the lawsuit as it progresses, but we think it will be unlikely to have a material impact on our view of PIMCO or its ability to manage clients' assets.”
Several other large PIMCO investors and consultants declined to comment or could not be reached for comment by press time.
Mr. Gross is now running the $1.38 billion Janus Global Unconstrained Bond Fund for Janus Capital. A Janus spokeswoman declined comment, explaining the lawsuit was a personal matter related to Mr. Gross and his activities prior to Janus.
Mr. Gross' decision to sue PIMCO for hundreds of millions of dollars in pay wrongly puts the emphasis on compensation rather than clients, said John Brynjolfsson, a former PIMCO manager.
“It's a sad day for the money management industry, it's a sad day for PIMCO, and it's a sad day for Bill,” Mr. Brynjolfsson said in an interview Thursday on Bloomberg Television.
Mr. Brynjolfsson left PIMCO in 2008 to start Armored Wolf, a money management firm based in Irvine, Calif.
Bloomberg contributed to this story.
