Jessica Rinaldi/ReutersBefore Jeffrey Gundlach fell from grace at TCW, he oversaw much of its assets and was responsible for roughly half of its revenue.
LOS ANGELES — Jeffrey Gundlach, as the manager of highly successful fixed-income funds, first at Trust Company of the West and more recently at his own business, has been called “the king of bonds.”
Now his former employer is trying to disrupt his reign.
In a rare instance of a prominent employee dispute going to trial, Trust Company of the West, better known as TCW, is trying to prove in court here that Mr. Gundlach and three other former employees stole client data and proprietary trading platforms to start Mr. Gundlach’s business, DoubleLine Capital, after he was fired in December 2009.
TCW, a unit of Société Générale, the French bank, is seeking more than $375 million in compensatory and punitive damages in the civil trial, which began in Los Angeles County Superior Court two weeks ago.
In a countersuit, Mr. Gundlach contends that TCW fired him to keep for itself hundreds of millions of dollars in management and performance fees. He is seeking more than $500 million in compensatory damages. His fortunes may turn on how convincing he is to the jury of seven men and five women when he takes the stand, possibly on Thursday.
The trial has captivated the mutual fund world and is being watched closely by pension funds and other large institutional investors. The reputations of TCW and Mr. Gundlach are at stake, and even a small award to either side would be seen as a huge symbolic victory.
Mr. Gundlach, 51, has made a fortune investing in mortgage-backed securities and other fixed-income products, and has gained a reputation as a hard-driving trader whose arrogance is eclipsed only by his market savvy.
In an interview on Tuesday, he attributed TCW’s case against him to “business interference,” and said the company was simply seeking to discredit him.
“They’re jealous of the talent,” he said, referring to himself.
In making their case, lawyers for TCW have sought to sketch a picture of Mr. Gundlach as a brash renegade who was secretly plotting to leave the company and use proprietary information to form a competitor.
Cris Santa Ana, Jeffrey Mayberry and Barbara VanEvery, Mr. Gundlach’s co-defendants, have testified that they downloaded TCW data to external hard drives before being fired.
Eric Arentsen, a TCW managing director, testified on Tuesday and Wednesday that Mr. Gundlach had referred to Marc I. Stern and Robert A. Day, TCW’s chief executive and founder, respectively, as “dumb and dumber” while employed there, and that he had heard Mr. Gundlach and Mr. Santa Ana talk of taking TCW systems to a new company.
“We have established clearly that the defendants were intentionally downloading information that they knew belonged to TCW, that they did it under the direction of Jeffrey Gundlach, and that this process began as early as early 2009,” said Susan Estrich, a lawyer for TCW.
Lawyers for Mr. Gundlach and his co-defendants have said that TCW data was not used at DoubleLine, and that he began preparing to leave only after it became clear he would be fired.
In his opening statement, Brad Brian, a lawyer for Mr. Gundlach, referred to “Project G,” what he described as a scheme by TCW executives to get rid of Mr. Gundlach well before December 2009. The trial has proved unusually exciting for a white-collar civil case, with some testimony resembling that of a bitter divorce proceeding. TCW lawyers have told the jury about a private jet trip Mr. Gundlach arranged for members of his team in 2009 to Marfa, Tex., where they smoked cigars, drank costly wine, viewed art collections and, the lawyers contend, plotted to leave TCW.
TCW tried to introduce even more lurid evidence about items that were found in Mr. Gundlach’s office after he was fired, including pornographic films and marijuana. But Judge Carl J. West did not allow that information to be used in court, saying it was irrelevant. Mr. Gundlach has called the belongings remnants of “a closed chapter in my life.”
Mr. Gundlach has long been a figure of controversy in the fund industry. A former Yale Ph.D. candidate in mathematics who has claimed to be able to do The New York Times Sunday crossword puzzle in 20 minutes, he decided to become a financier after watching “Lifestyles of the Rich and Famous,” the television show with Robin Leach.
He joined TCW in 1985 as an entry-level analyst and eventually made a name for himself by specializing in mortgage-backed securities. In 2006, Morningstar named him fixed-income manager of the year, and he is often mentioned in the same breath as notable bond investors like Bill Gross of Pimco.
By the time he left TCW in 2009, he oversaw $70 billion in assets, roughly 65 percent of the company’s total assets, and was responsible for roughly half of its revenue. About 40 TCW employees followed him to DoubleLine. Today TCW has 550 employees. Howard Marks, chairman of Oaktree Capital Management, said via e-mail that “to the extent TCW’s goal has been to impede DoubleLine’s success, it’s obvious that has failed.”
Mr. Marks, who left TCW in a bitter split in 1995, helped Mr. Gundlach start DoubleLine, and owns a 22 percent stake in it. DoubleLine has become a prominent company with about $14 billion in assets under management. Its flagship Total Return Bond fund grew more than 13 percent in the last 12 months, according to data from Bloomberg.
TCW is still dealing with the effects of Mr. Gundlach’s departure. In 2010, it announced that it had acquired Metropolitan West Asset Management to replace the team that left with Mr. Gundlach, but investors withdrew some $25 billion from TCW. Its assets under management have grown since Mr. Gundlach was fired, and totaled about $120 billion in June, but its flagship bond fund has trailed DoubleLine’s.
In a statement, Mr. Stern, TCW’s chief executive, said, “The integration and performance of the MetWest team has exceeded every one of my expectations, and has helped put TCW on a path of steady growth, with a new cohesive culture of cooperation and teamwork.”
In making their case, lawyers for TCW have sought to show that the trading platform Mr. Gundlach’s team developed at the company, which includes software that quickly analyzes the individual mortgages within a mortgage-backed security, could not have been quickly replicated at DoubleLine without copying. A TCW lawyer compared the value of the trading system to “the recipe for Kentucky Fried Chicken.”
Mr. Gundlach has previously said that the system he used at TCW was easily duplicable, comparing it to “The Sun Also Rises.” Once Hemingway had written the book, Mr. Gundlach said, replacing it would simply be a matter of remembering what he had done and typing it out again.
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