In another blow for TCW, a judge has thrown out claims that the firm’s former star money manager breached company policy by storing pot, porn, and sex toys in his office
The judge presiding over the bitter legal battle between money management firm TCW and the star bond fund manager Jeffrey Gundlach handed down a ruling Thursday that throws out the most salacious allegations of the trial, and is a win for Gundlach.
Judge Carl J. West granted the defense team’s motion to eliminate references to the marijuana, pornography, and sex toys that were found in Gundlach’s office upon his departure from TCW, along with allegations about affairs between Gundlach and ex-coworkers. The judge said that if he were to allow such allegations, it would open up “a Pandora’s box of problems.” He also said that the claims were not relevant to the real claims in the case, which are breach of fiduciary duty, conspiracy to steal trade secrets, and breach of contract.
When TCW, a subsidiary of Societe Generale [Paris: GLE], sued Gundlach last year for stealing company secrets, the firm also opened the kimono, so to speak, on the contents of Gundlach’s drawers. The details from the complaint — “marijuana, drug paraphernalia, including paraphernalia bearing evidence of recent use, a collection of 12 sexual devices, 34 hardcore pornographic magazines and 36 hardcore sexually explicit DVDs and videocassettes” — were catnip for the press; and the information, along with the way it was revealed, gave clients of TCW and potential clients of Gundlach’s new firm DoubleLine pause. (Several TCW clients left after Gundlach was fired.) It was a distasteful series of details aired in an odious manner. As part of Gundlach’s countersuit, he alleges that TCW tried to smear him.
The trial isn’t set to begin until July 25, but the courtroom drama has already begun well for Gundlach. TCW was earlier thwarted by Judge West when it asked to have Gundlach’s countersuit thrown out.
The battle of TCW and Gundlach is a long and convoluted tale of theft, double-crossing, and deception. (And it is bountifully detailed by FORTUNE here.) But the Cliffs Notes version begins in 2009, when Gundlach was passed over for the position of TCW chief executive. The move seemed absurd on the face of it, given that Gundlach managed 70% of TCW’s assets and had out-invested the bond king himself, Bill Gross, over at PIMCO.
But it was also not so absurd. A CEO is a high level sales person as much as anything else, given the task of selling the company to the outside world. And TCW is run by men who travel in circles marked by money and breeding. Marc Stern, the chosen CEO, is chairman and chief executive of the Los Angeles Opera, and he was appointed Commandeur de l’Ordre National du Mérite by the president of France. Robert Day, the billionaire founder, is the grandson of William Keck, the founder of Superior Oil.
Gundlach on the other hand, is a working class kid from Buffalo who grew up to be a wildly rich and fantastically eccentric weirdo of an adult. He tears down employees who make mistakes. He wears electric blue suits. He speaks in cryptic stream-of-consciousness monologues that few can follow. And he has all the stereotypical, Asperger-ish characteristics of a math genius, and then some. He was not well liked by his superiors, and rumors that he would be fired swirled around the office long before he was finally ousted.
TCW claims that Gundlach conspired with employees to steal client information and technology from TCW in order to form their own firm. (Gundlach did in fact form the successful firm DoubleLine, now at $13 billion in assets under management, as soon as he left.) After literally chasing him down 17 flights of stairs and out the door on December 4, 2009, TCW sued Gundlach and three employees who went to DoubleLine for $200 million in damages. The complaint was filed in January 2010.
Gundlach countersued. He claimed that TCW not only tried to tarnish his reputation (clients don’t want their money managers multitasking between Bloomberg terminals and adult films??), but that the firm actually fired him so it wouldn’t have to pay between $600 million and $1.25 billion fees that it owed he and his team. Gundlach is seeking $1.25 billion.
Only when this made-for-an-HBO-miniseries of a trial ends will we know who the jury favors, TCW or Gundlach. Until that happens, the current court filings make clear that the world is going to see a lot of dirty laundry get aired, even now that the most outrageous claims have been thrown out.
