March 1, 2021

DealBook: Gundlach Found Liable for Trade Secret Theft, but Gets Back Pay

Jeffrey Gundlach, chief of DoubleLine.Jessica Rinaldi/ReutersJeffrey Gundlach received a mixed verdict in his fight with TCW.

2:23 p.m. | Updated

A bitter corporate feud came to an end on Friday, as a jury found Jeffrey E. Gundlach, a star fixed-income manager, liable for breaching his fiduciary duty and stealing trade secrets at his former firm, Trust Company of the West.

But the jury delivered a mixed verdict as it also awarded Mr. Gundlach $66.7 million as the result of a counterclaim that he was owed fees from the funds he oversaw.

Jurors deliberated for just two days before finding Mr. Gundlach and three co-defendants liable for taking trade secrets from TCW, as Trust Company of the West is known, and breaching his fiduciary duty to investors. They awarded no damages to TCW on the breach claim.

The judge in the case will determine the damages in the trade secret claim.

The verdict, announced in Los Angeles County Superior Court, capped a trial that lasted nearly two months and captivated the mutual fund world. TCW had claimed that Mr. Gundlach and his associates took client information and proprietary trading systems in order to set up a competing firm, DoubleLine Capital, after he was fired in December 2009. The jury found that Mr. Gundlach had misappropriated that data, but found that he had not acted maliciously in doing so.

TCW gained an important symbolic win in the jury’s finding that Mr. Gundlach and his co-defendants were liable.

“We came in here focused on basic principles and wrongful conduct. We brought three claims, and the jury found liability on all three claims,” said Susan Estrich, a lawyer for TCW.

However, Mr. Gundlach’s lawyers pointed to the $66.7 million award as a victory.

“We are 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. We’re equally pleased that the jury awarded Mr. Gundlach and our other clients the wages that were owed to them,” said Brad Brian, a lawyer for Mr. Gundlach.

Mr. Gundlach, dressed in a pinstripe suit with a bright orange tie, was seated next to one of his co-defendants, Barbara VanEvery, as the verdict was read.

Although lawyers for both sides claimed victory after the verdict, some industry watchers said that the lack of damages for TCW’s claims meant the verdict had favored Mr. Gundlach slightly, although neither side had landed a knockout blow.

“This divorce has been messy, and it’s a good thing that the investment teams can now go back to managing portfolios without this distraction hanging over them,” said Miriam Sjoblom, a bond fund analyst with Morningstar. “To the extent DoubleLine shareholders were worried about damages from this suit impacting the resources of the firm, this verdict should assuage those fears.”

Mr. Gundlach was known as “the bond king” at TCW, where he worked for 24 years and was named fixed-income manager of the year in 2006 by Morningstar for his fund specializing in mortgage-backed securities.

As his star rose, former colleagues say Mr. Gundlach’s ego grew as well. Witnesses in the trial described him as a “cultural cancer” who berated colleagues and disparaged his bosses, Marc I. Stern and Robert A. Day, calling them “dumb and dumber.” In closing arguments, lawyers for TCW queued up a slideshow of some of Mr. Gundlach’s greatest hits, including e-mails in which he referred to himself as “the Pope” and referred to Philip A. Barach, his co-manager, as “the B team.”

After being fired from TCW in December 2009, Mr. Gundlach got DoubleLine up and running quickly, bringing more than 40 members of his fixed-income team over to the new firm. It has grown quickly, amassing $15 billion in assets in less than two years.

TCW, a unit of the French bank Société Générale, struggled in the immediate wake of Mr. Gundlach’s departure. The firm lost $25 billion in assets after Mr. Gundlach left, even though it acquired a competitor, Metropolitan West, to replace his team.

Today, TCW is on the mend. It has about 600 employees, and the firm’s assets under management have grown to $120 billion. In a fact sheet distributed to reporters during the trial, the firm claimed that it has gained “a more collegial, collaborative workplace culture” since firing Mr. Gundlach.

Mr. Gundlach, a math prodigy who has claimed he only does The New York Times crossword puzzle on Saturdays and Sundays because the other days are too easy, said in an interview last month that undergoing an ugly legal battle with his longtime firm had damaged his view of human nature.

“I didn’t realize how twisted people were,” he said.

The trial, which began in July, resembled a white-collar divorce case. Lawyers for TCW accused Mr. Gundlach of conspiring to sabotage his firm, comparing him to Gordon Gekko, the fictional buyout villain played by Michael Douglas in Wall Street. Mr. Gundlach’s lawyers, in return, asserted that TCW had plotted to fire him for months, and that it wanted to save money on the lucrative fees it owed him.

After the verdict was read, Judge Carl J. West thanked jurors for serving in the trial, which included long slogs through arcane financial terminology.

“It is an imposition, and you are to be commended for your service,” Judge West said, according to a live feed provided by CourtroomView.

TCW was represented in the case by the Los Angeles law firm Quinn Emanuel Urquhart Sullivan. Mr. Gundlach and his co-defendants were represented by Munger, Tolles Olson.

Article source: http://feeds.nytimes.com/click.phdo?i=cce63ff952043cef7a02a2ef4fc0d9df

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