September 23, 2021

DealBook: TCW Settles Suit With Its Former Star Investor

One of the year’s most contentious white-collar employment disputes came to an end Thursday, as Trust Company of the West, the California-based mutual fund, announced that it had settled a lawsuit with its former star investor, Jeffrey E. Gundlach.

The settlement, announced in two separate statements by TCW, as Trust Company of the West is known, and DoubleLine Capital, Mr. Gundlach’s new fund, capped a bitter and protracted dispute that turned the normally anodyne mutual fund world into a heated legal battleground. The terms of the settlement were not disclosed, and the firms said in statements that they would not discuss it further.

TCW sued Mr. Gundlach, its former chief investment officer, in 2010 for hundreds of millions of dollars in damages, accusing him and several associates of stealing trade secrets and breaching their fiduciary duty in order to set up a competing firm after he was fired from TCW in 2009.

Mr. Gundlach countersued, arguing that he was entitled to hundreds of millions of dollars in lost fees from the funds he oversaw at TCW. More than 40 TCW employees eventually followed Mr. Gundlach to DoubleLine.

A six-week trial ensued this summer, during which attorneys for TCW tried to paint Mr. Gundlach, a closely watched figure in fixed-income investing who has referred to himself as “the Pope” and “the Godfather,” as a self-centered renegade who was bent on sabotaging the firm. DoubleLine’s legal team tried to show that Mr. Gundlach’s ouster was the result of a long-held vendetta by Marc Stern, the firm’s chief executive, and other firm officials.

In September, a Los Angeles jury gave a mixed verdict in the civil case that awarded Mr. Gundlach and three associates $66.7 million in damages in the countersuit, while finding them liable for breaching their fiduciary duty to TCW and misappropriating trade secrets.

Thursday’s settlement will essentially override the jury’s verdict, which had yet to be finalized by a judge. The judge, Carl J. West, had yet to rule on an outstanding dispute over whether TCW was owed millions of dollars in “reasonable royalties” for the jury’s trade secrets finding.

TCW, a unit of the French bank Societe Generale, has been the target of speculation in recent weeks. After reports surfaced that the bank, which has been trying to raise capital by selling non-core assets, was planning to sell the mutual fund manager, it batted down the rumors.

With a settlement with Mr. Gundlach and DoubleLine now behind it, TCW will have one fewer worry going into the new year.

“We are pleased that an agreement has been reached and that this matter is now behind us,” Peter Viles, a TCW spokesman, said in an e-mail. “TCW is well positioned to continue the strong momentum and growth it has established over the past two years.”

This post has been revised to reflect the following correction:

Correction: December 30, 2011

An earlier version of the headline for this post misstated the name of the mutual fund company that settled the suit. It is TCW, not TWC.

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Wealth Matters: Sticking by Rosy Predictions for the Stock Market

This is fairly remarkable given what the first quarter brought: natural disasters, serious problems at a Japanese nuclear reactor and revolution and unrest in the Middle East. That politicians in the United States are bickering along party lines, with the budget hanging in the balance, seems trivial by comparison.

“If we had all sat down in January and predicted we’d have turmoil in the Middle East and Africa, a devastating tsunami in Japan, an earthquake in New Zealand, housing continuing to go down, oil over $100 a barrel and policy makers still fighting with each other, we might have been tempted to say that 1,400 for the S. P. looked aggressive,” Marc Stern, chief investment officer at Bessemer Trust, said of his year-end stock index prediction. “But the market hung in there well because of corporate earnings.”

Richard Madigan, chief investment officer for J.P. Morgan Private Bank’s global access portfolios, was equally impressed with how the stock market weathered this spate of shocks. “It’s staggering what we saw and how well behaved the market was,” he said. “I don’t believe the markets would have behaved as well as they had over the past three months if investors were fully invested.”

That was the silver lining for those who analysts who made bullish calls. Many people were still hesitant to invest their cash despite predictions that the stock markets would rise steadily this year.

Back in January, Mr. Stern predicted as much, saying that stocks would have to rise more before most investors would buy equities again.

To one contrarian, waiting on equities is not a bad thing with the prospect of inflation still low. “Domestically, you don’t have the source of factors to create inflation,” said Richard Cookson, chief investment officer at Citi Private Bank. “You have broad monetary policy crawling along. You have a situation where unemployment or underemployment is extremely high. You don’t have the ability for employees to gouge more from their employers.”

So with the second quarter under way, let’s see what our group sees for the rest of the year.

CONSENSUS The big debate when I spoke to this group in January was over whether the time was right to move money from bonds to stocks. With the exception of Mr. Cookson, the consensus was that it was.

Those beliefs are even firmer now. “It is important to point out that stocks have not been this cheap to bonds since 1980,” said Niall Gannon, director of wealth management at the Gannon Group at Morgan Stanley Smith Barney. “We see a global equity strategy focused on where the earnings are produced.”

To that end, he treats Japanese equities like American companies because the United States consumes so many Japanese products, while he considers Nike a non-American company because only 25 percent of its earnings come from sales here.

Some suggestions for variations on stocks have not fared as well.

Bill Stone, chief investment strategist at PNC Wealth, said he favored dividend-paying stocks in January but admitted that they performed better in February when the stock market lost some value than they did when the market was strong.

Still, he said he believed that Cisco Systems announcing its first dividend ever in March was a sign that such stocks could come back in vogue. “It’s still a nice play in risk-reward terms,” he said. “I think we’re at the very beginning of the reallocation into equities, and that makes it attractive.”

Mr. Stern said he continued to believe that convertible bonds were right for people who want more return but were still hesitant about putting a lot of money into equities. “If the stock went up 25 percent, the convertible bond could go up 12 to 15 percent,” he said. “If the stock went down 25 percent, the convertible bond would roughly break even.”

SURPRISES Beyond the earthquake and tsunami in Japan and the unrest in the Middle East, there were other unexpected changes.

On the positive side, the unemployment rate has dropped to 8.8 percent. Mr. Madigan had predicted that it would hover around 9 to 10 percent for the foreseeable future. “I’m thrilled that I was wrong,” he said. But he said he did not think there would be real economic growth until employees were paid more.

The worries about a wave of municipal bond defaults seem to have been overdone — or at least premature. Mr. Gannon said his group created a model with a 2 to 3 percent default rate for the year, but he now sees that as too high. And even if that default rate occurs, he said it would not have a huge impact on portfolios with higher-grade municipal bonds.

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