Jeffrey Gundlach, formerly the chief investment officer of TCW who managed $110 billion in assets, was fired by TCW in December 2009. TCW then sued Gundlach, alleging he stole proprietary client information to start his own firm, DoubleLine Capital. Gundlach countersued, claiming he was wrongfully terminated to prevent him from receiving hundreds of millions in future fees. The legal battle represents the culmination of years of tensions between Gundlach and TCW management after the firm was acquired by French bank Societe Generale in 2001.
The document discusses Barack Obama's political identity and governing style. It argues that Obama is both an ideologue and a pragmatist who is willing to compromise to get things done. This puzzles some because Obama promised a post-partisan approach as a candidate but has governed as a conventional liberal. Both the right and left have struggled to understand Obama because he is more willing to cut deals than many supporters prefer, though he aims to work within the political system like Reagan and Kennedy.
1) Kosta Browne Winery in Sonoma County has become a cult favorite among investors and enthusiasts for its pinot noir wines. However, it takes winemakers like Michael Browne and Dan Kosta years of toil and risk to achieve cult status and profitability in the wine industry.
2) William Price, co-founder of private equity firm TPG Capital, has invested in several cult California wineries through his company Vincraft in hopes of earning returns for outside investors. He looks for passionate winemakers who have developed brands with strong individual identities.
3) Pioneering cult wineries like Harlan Estate have shown it is possible to fetch high prices for California wines comparable to top
Venture capitalists are investing heavily in renewable energy startups as oil prices rise and concerns about global warming grow. In 2005, U.S. VC funds invested a record $739 million in renewable energy, up 36% from 2004. Some top VCs see opportunities in solar power, geothermal energy, biodiesel, and ethanol to help break dependence on foreign oil and address climate change. However, alternative energy remains more expensive than fossil fuels and has faced challenges achieving widespread adoption. VCs argue that factors like peaking oil production, China's growing energy demand, and public concern over global warming mean alternative energy is poised for growth.
Lions Gate Entertainment is betting that its upcoming film The Hunger Games, based on a popular book trilogy, will become a major franchise like Twilight and help turn the studio around. The $80 million production is Lions Gate's most expensive ever. The independent studio has struggled in recent years, reporting losses for four straight years, and had to fend off a hostile takeover attempt by billionaire Carl Icahn in 2010. Lions Gate CEO Jon Feltheimer and Vice Chairman Michael Burns are optimistic that if The Hunger Games is a box office success, it could generate several sequels and hundreds of millions in profits for Lions Gate. However, the studio is under pressure to have a hit after recent disappointments like Conan the
Hardman and his team of international sleuths have been hunting for $6 billion that disappeared from BTA Bank in Kazakhstan. Over five years, they have followed a trail of shell companies and investigated BTA's former chairman, Mukhtar Ablyazov, who they allege embezzled the funds. Through litigation and surveillance of Ablyazov's associates, the team has managed to recover several hundred million dollars, but most of the funds remain missing. Ablyazov denies the allegations and claims he is being persecuted for his political opposition in Kazakhstan. The complex legal battle continues as the team works to prove Ablyazov's control of offshore shell companies holding BTA's assets.
1) Juan Jose Perez hatched an elaborate foreclosure rescue scheme in California, pretending to be a lender and scamming hundreds of struggling homeowners out of up to $1.2 million in advance fees.
2) One of Perez's victims was Jose Serrano, a dump truck driver who was facing foreclosure after falling behind on his adjustable rate mortgage payments. Serrano was sent documents by Perez's company that falsely stated his loan had been modified.
3) Prosecutors have charged Perez and seven others in his operation with grand theft, money laundering, and conspiracy for their rescue scam. Perez has fled to Mexico and prosecutors are seeking his extradition. The case highlights the proliferation of scams that
The document discusses Barack Obama's political identity and governing style. It argues that Obama is both an ideologue and a pragmatist who is willing to compromise to get things done. This puzzles some because Obama promised a post-partisan approach as a candidate but has governed as a conventional liberal. Both the right and left have struggled to understand Obama because he is more willing to cut deals than many supporters prefer, though he aims to work within the political system like Reagan and Kennedy.
1) Kosta Browne Winery in Sonoma County has become a cult favorite among investors and enthusiasts for its pinot noir wines. However, it takes winemakers like Michael Browne and Dan Kosta years of toil and risk to achieve cult status and profitability in the wine industry.
2) William Price, co-founder of private equity firm TPG Capital, has invested in several cult California wineries through his company Vincraft in hopes of earning returns for outside investors. He looks for passionate winemakers who have developed brands with strong individual identities.
3) Pioneering cult wineries like Harlan Estate have shown it is possible to fetch high prices for California wines comparable to top
Venture capitalists are investing heavily in renewable energy startups as oil prices rise and concerns about global warming grow. In 2005, U.S. VC funds invested a record $739 million in renewable energy, up 36% from 2004. Some top VCs see opportunities in solar power, geothermal energy, biodiesel, and ethanol to help break dependence on foreign oil and address climate change. However, alternative energy remains more expensive than fossil fuels and has faced challenges achieving widespread adoption. VCs argue that factors like peaking oil production, China's growing energy demand, and public concern over global warming mean alternative energy is poised for growth.
Lions Gate Entertainment is betting that its upcoming film The Hunger Games, based on a popular book trilogy, will become a major franchise like Twilight and help turn the studio around. The $80 million production is Lions Gate's most expensive ever. The independent studio has struggled in recent years, reporting losses for four straight years, and had to fend off a hostile takeover attempt by billionaire Carl Icahn in 2010. Lions Gate CEO Jon Feltheimer and Vice Chairman Michael Burns are optimistic that if The Hunger Games is a box office success, it could generate several sequels and hundreds of millions in profits for Lions Gate. However, the studio is under pressure to have a hit after recent disappointments like Conan the
Hardman and his team of international sleuths have been hunting for $6 billion that disappeared from BTA Bank in Kazakhstan. Over five years, they have followed a trail of shell companies and investigated BTA's former chairman, Mukhtar Ablyazov, who they allege embezzled the funds. Through litigation and surveillance of Ablyazov's associates, the team has managed to recover several hundred million dollars, but most of the funds remain missing. Ablyazov denies the allegations and claims he is being persecuted for his political opposition in Kazakhstan. The complex legal battle continues as the team works to prove Ablyazov's control of offshore shell companies holding BTA's assets.
1) Juan Jose Perez hatched an elaborate foreclosure rescue scheme in California, pretending to be a lender and scamming hundreds of struggling homeowners out of up to $1.2 million in advance fees.
2) One of Perez's victims was Jose Serrano, a dump truck driver who was facing foreclosure after falling behind on his adjustable rate mortgage payments. Serrano was sent documents by Perez's company that falsely stated his loan had been modified.
3) Prosecutors have charged Perez and seven others in his operation with grand theft, money laundering, and conspiracy for their rescue scam. Perez has fled to Mexico and prosecutors are seeking his extradition. The case highlights the proliferation of scams that
Skype's co-founders Niklas Zennstrom and Janus Friis have regained control of Skype after selling it to eBay in 2005. They sued eBay and Silver Lake, who acquired Skype in 2009, claiming copyright infringement, and were given a 14% stake and board seats in exchange for dropping the lawsuits. Skype is now preparing for an IPO, with a goal of expanding into the $203 billion corporate telecommunications market. However, Skype will need to gain the trust of corporations and overcome concerns about using a consumer internet service for business communications.
Google's $1.65 billion acquisition of YouTube sparked optimism in tech circles about a potential new bubble in the industry, though some investors remain cautious. The article profiles several new internet companies founded by young entrepreneurs in the Web 2.0 era and examines whether the current boom shares similarities with the dot-com bubble of the late 1990s. While start-up costs are much lower today, many companies still face challenges proving they can build profitable, sustainable businesses from their free websites and user-generated content models.
1) Google is developing a mobile phone operating system called Android to challenge Microsoft's dominance in mobile operating systems and gain control of the growing mobile internet market.
2) Google's Android operating system is being developed internally and will be provided freely to phone manufacturers and carriers in an effort to gain wide adoption on mobile phones.
3) Developing a successful mobile operating system would help address Google's concerns about slowing growth from desktop search and help gain revenue from the fast growing mobile internet advertising market. However, cracking the entrenched mobile market will be very challenging given competition from Microsoft, Apple, RIM and others.
This document summarizes John Browne's career pushing for fracking in the UK. It describes him as the controversial face of fracking in the UK, which faces strong public opposition over environmental concerns. As the former CEO of BP and now chairman of Cuadrilla Resources, Browne has become a prominent advocate for developing UK shale gas through fracking. He argues it could provide significant economic and energy security benefits to the country, though environmental groups warn it may undermine efforts to address climate change. The document outlines Browne's long career in oil and role in pivotal industry developments, as well as the debate around fracking's environmental impacts.
Mac McQuown is an 80-year-old financial engineer who helped pioneer modern quantitative investing. He is developing a new type of hybrid security called an "eBond" that embeds a credit default swap into a corporate bond to make it less risky and more liquid. The eBond aims to address the growing liquidity issues in the $8 trillion corporate bond market by transforming junk bonds into essentially AAA rated notes. If successful, the eBond could help revive trading activity in the corporate bond market. However, some critics argue that financial innovations often fail to benefit investors and can even destabilize markets.
Anthony Scaramucci is the founder of SkyBridge Capital, a funds-of-funds firm. Through his marketing skills and ability to connect with influential figures, he has grown SkyBridge and promoted the hedge fund industry through his annual SALT conference. However, funds-of-funds have lost assets since the financial crisis due to high fees and lackluster returns. Scaramucci hopes to attract mainstream investors to funds-of-funds by making them more accessible, but critics argue they are too complex and risky for average investors.
Global Witness co-founder Charmian Gooch has spent over 20 years working to increase transparency around how money flows through corporate structures. Her investigations have revealed how corrupt officials use anonymous shell companies to hide ownership of assets acquired through bribery, looting of natural resources, and other illicit means. Gooch's advocacy has helped pass laws in several countries requiring disclosure of corporate beneficial owners. Most recently, UK Prime Minister David Cameron introduced legislation requiring UK-based companies to reveal their true owners in response to Gooch's long-standing calls for greater transparency.
Xavier Niel is a French tech billionaire who founded Iliad, France's second largest broadband provider. He is working to build a startup culture in France by investing hundreds of millions of euros to convert an old train station into a center for startups and opening a coding school. However, France has traditionally lacked an entrepreneurial culture and has high labor costs that discourage business risk-taking and investment. Niel aims to disrupt this system by cultivating an ecosystem to foster tech startups and help young entrepreneurs launch innovative companies in France.
1) Vincent and Robert Tchenguiz, British property magnates, have launched a £300 million legal attack on the U.K.'s Serious Fraud Office for its mishandling of an investigation into their dealings with an Icelandic bank.
2) The SFO investigation fell apart and the Tchenguiz brothers were not charged, leading them to sue the SFO for malicious prosecution and false imprisonment.
3) If successful, the damages from the brothers' lawsuits could amount to almost 10 times the annual budget of the SFO, dealing a major blow to its reputation. The trial is scheduled to begin in May 2014.
- Funding Circle is an online peer-to-peer lending platform based in London that arranges loans for small businesses that have difficulty accessing credit from banks.
- It has arranged over £366 million in loans between 32,000 investors and 5,000 small businesses since its inception in 2009.
- Funding Circle and other financial technology ("fintech") startups are challenging traditional banks by using new online models and technologies to provide alternatives for borrowing, lending, payments and other financial services.
Skype's co-founders Niklas Zennstrom and Janus Friis have regained control of Skype after selling it to eBay in 2005. They sued eBay and Silver Lake, who acquired Skype in 2009, claiming copyright infringement, and were given a 14% stake and board seats in exchange for dropping the lawsuits. Skype is now preparing for an IPO, with a goal of expanding into the $203 billion corporate telecommunications market. However, Skype will need to gain the trust of corporations and overcome concerns about using a consumer internet service for business communications.
Google's $1.65 billion acquisition of YouTube sparked optimism in tech circles about a potential new bubble in the industry, though some investors remain cautious. The article profiles several new internet companies founded by young entrepreneurs in the Web 2.0 era and examines whether the current boom shares similarities with the dot-com bubble of the late 1990s. While start-up costs are much lower today, many companies still face challenges proving they can build profitable, sustainable businesses from their free websites and user-generated content models.
1) Google is developing a mobile phone operating system called Android to challenge Microsoft's dominance in mobile operating systems and gain control of the growing mobile internet market.
2) Google's Android operating system is being developed internally and will be provided freely to phone manufacturers and carriers in an effort to gain wide adoption on mobile phones.
3) Developing a successful mobile operating system would help address Google's concerns about slowing growth from desktop search and help gain revenue from the fast growing mobile internet advertising market. However, cracking the entrenched mobile market will be very challenging given competition from Microsoft, Apple, RIM and others.
This document summarizes John Browne's career pushing for fracking in the UK. It describes him as the controversial face of fracking in the UK, which faces strong public opposition over environmental concerns. As the former CEO of BP and now chairman of Cuadrilla Resources, Browne has become a prominent advocate for developing UK shale gas through fracking. He argues it could provide significant economic and energy security benefits to the country, though environmental groups warn it may undermine efforts to address climate change. The document outlines Browne's long career in oil and role in pivotal industry developments, as well as the debate around fracking's environmental impacts.
Mac McQuown is an 80-year-old financial engineer who helped pioneer modern quantitative investing. He is developing a new type of hybrid security called an "eBond" that embeds a credit default swap into a corporate bond to make it less risky and more liquid. The eBond aims to address the growing liquidity issues in the $8 trillion corporate bond market by transforming junk bonds into essentially AAA rated notes. If successful, the eBond could help revive trading activity in the corporate bond market. However, some critics argue that financial innovations often fail to benefit investors and can even destabilize markets.
Anthony Scaramucci is the founder of SkyBridge Capital, a funds-of-funds firm. Through his marketing skills and ability to connect with influential figures, he has grown SkyBridge and promoted the hedge fund industry through his annual SALT conference. However, funds-of-funds have lost assets since the financial crisis due to high fees and lackluster returns. Scaramucci hopes to attract mainstream investors to funds-of-funds by making them more accessible, but critics argue they are too complex and risky for average investors.
Global Witness co-founder Charmian Gooch has spent over 20 years working to increase transparency around how money flows through corporate structures. Her investigations have revealed how corrupt officials use anonymous shell companies to hide ownership of assets acquired through bribery, looting of natural resources, and other illicit means. Gooch's advocacy has helped pass laws in several countries requiring disclosure of corporate beneficial owners. Most recently, UK Prime Minister David Cameron introduced legislation requiring UK-based companies to reveal their true owners in response to Gooch's long-standing calls for greater transparency.
Xavier Niel is a French tech billionaire who founded Iliad, France's second largest broadband provider. He is working to build a startup culture in France by investing hundreds of millions of euros to convert an old train station into a center for startups and opening a coding school. However, France has traditionally lacked an entrepreneurial culture and has high labor costs that discourage business risk-taking and investment. Niel aims to disrupt this system by cultivating an ecosystem to foster tech startups and help young entrepreneurs launch innovative companies in France.
1) Vincent and Robert Tchenguiz, British property magnates, have launched a £300 million legal attack on the U.K.'s Serious Fraud Office for its mishandling of an investigation into their dealings with an Icelandic bank.
2) The SFO investigation fell apart and the Tchenguiz brothers were not charged, leading them to sue the SFO for malicious prosecution and false imprisonment.
3) If successful, the damages from the brothers' lawsuits could amount to almost 10 times the annual budget of the SFO, dealing a major blow to its reputation. The trial is scheduled to begin in May 2014.
- Funding Circle is an online peer-to-peer lending platform based in London that arranges loans for small businesses that have difficulty accessing credit from banks.
- It has arranged over £366 million in loans between 32,000 investors and 5,000 small businesses since its inception in 2009.
- Funding Circle and other financial technology ("fintech") startups are challenging traditional banks by using new online models and technologies to provide alternatives for borrowing, lending, payments and other financial services.
1. bloomberg markets month 2010
48
More than 40 members
of Gundlach’s TCW
team have joined him
at DoubleLine.
By Edward Robinson and
Sree Vidya Bhaktavatsalam
BONDS
AND
BETRAYAL
Photograph by david strick
3. bloomberg markets april 2010
50
Arelentlessself-promoterwhodescribeshimselfasa“money
machine,”Gundlachoutperformed99percentofhisrivalfixed-
incomemoneymanagersfrom2005to2009,accordingtodata
compiledbyBloomberg.Hislieutenantscall him“theGodfather”
fortheloyaltyhecommandsandtherichstreamofassetmanage-
mentfeeshebringsin.“Iamamazinglybrilliantanalytically,”
saysGundlach,awirymanwhoseshortbrownhairhugshisskull
likeahelmet.“I’mtheguywhomakesitraininthedesert.”
TCW Chief Executive Officer Marc Stern fired his rainmaker
on Dec. 4. Stern,
65, who former
colleagues say is as
hard-charging a
figure as Gund-
lach, referred to
the ousted money
manager as a
“prima donna” on
a conference call
with TCW em-
ployees on Dec. 7.
A month later,
TCW accused
Gundlach in a law-
suit of stealing trading and contact data for thousands of clients
so he could open his own firm, Los Angeles–based DoubleLine
Capital LP.
Gundlach,whoduring24yearsrosefromajunioranalystto
manageabout70percentofTCW’s$110billioninassets,denies
theallegationsinthelawsuit.InacountersuitfiledonFeb. 10,
GundlachcontendsTCWoustedhimlargelytotakecontrolof
the15fundsheranandkeep$600millionto$1.25billioninfees
histeamwasduetobepaidoverthenextfewyears.Thefeudhas
woundedTCW,whichinFebruarytooktheunusualmoveof
slashingitsfeesintwoofGundlach’sformerfundstoinducein-
vestorstokeeptheirassetsatTCW.Withyearsofbadbloodbe-
tweenGundlachandStern,thisbattleisn’tjustbusiness—it’s
personal. “It’s a bitter divorce,” says Neil Rue, a managing
director at Pension Consulting Alliance Inc., a Portland,
Oregon–basedfirmthatadvisesinstitutionalinvestors.
Thisisastoryrootedinoldgrudgesovermoneyandthepe-
rennialtensionbetweenthesuitsintheexecutivesuiteandthe
investmentwizardsonthetradingfloor.ItbeginsinJuly2001,
whenSocieteGeneralepushedintoU.S.assetmanagementby
acquiringTCW.OriginallyknownasTrustCompanyoftheWest,
thefirmwentontoinvestmoneyforinstitutionssuchastheCal-
iforniaStateTeachers’RetirementSystemandCornellUniver-
sityandcountedHenryKissingerandEnronCorp.founder
KennethLayasdirectorsinthe1980sand1990s.TheFrench
bankawardedfreshequityinTCWtoitsseniorofficersand
skippedoverthemoneymanagers,formerTCWexecutivessay.
ThemovedilutedGundlach’sexistingstake,andthemoney
managersaysheneverforgotthesnub.
Paris-basedSocGen,a146-year-oldretailbankthathadlong
laggedbehindrivalsinmergersadviceandunderwriting,became
oneoftheworld’stopissuersofequityderivativesafter2000.
TheninJanuary2008,asthecreditcrisiswaspickingupmomen-
tum,SocGendisclosedthatithadlost€4.9billionunwindingun-
authorizedbetsthattraderJeromeKervielhadmadeonstock
indexfutures.Kerviel,33,maintainsheactedwiththeknowledge
ofhissupervisorsandhasn’tbeenaccusedofpersonallyprofiting
fromthetrades.Followingthescandal,CEODanielBoutonre-
signedandhissuccessor,FredericOudea,movedtospinofffar-
flungassetmanagementunitssuchasTCW.
For Gundlach, who ran his investment team as a quasi-
autonomousfiefdomandwhohaspersonallyearned$134mil-
lion since 2005, Oudea’s course augured the end of his
independence. Last September, the money manager, who spe-
cializes in mortgage-backed securities, threatened to lead a
mass defection of his 65-member investment team to his own
firm, Stern wrote in January in an e-mail to Bloomberg News.
“This would have had an adverse and negative reaction on our
fixed-income business,” said Stern, who declined to comment
further. Gundlach denies the allegation, saying he wanted to
protect his TCW business, not quit.
OnthesamedayinDecemberthatGundlachwassackedfor
allegedlystealingclientinformation,TCWannounceditwasac-
quiringMetropolitanWestAssetManagementLLC,acrosstown
rival,totakeoverhisfunds.
On a conference call with TCW’s 700 employees on Dec. 7,
Robert Day, the firm’s founder and chair-
man, said terminating Gundlach was
necessary for the good of the company,
according to a recording of the meeting.
JasonLaVeris/FilmMagic
GUNDLACH’S
LIEUTENANTSCALL
HIM‘THEGODFATHER’
FORTHELOYALTYHE
COMMANDSANDTHE
STREAMOFFEESHE
BRINGSIN.‘I’MTHEGUY
WHOMAKESITRAIN
INTHEDESERT,’THE
MONEYMANAGERSAYS.
Marc Stern, CEO
of TCW, fired
Gundlach.
4. april 2010 bloomberg markets
51
Day, 66, had been a father figure to Gundlach early in the money
manager’s career. Now, three days after Gundlach’s termina-
tion, Day likened his one-time protege to a soldier who rocked
George Washington’s boat as it crossed the Delaware River in
1776. “Your choices are very simple,” Day told his employees.
“You shoot the soldier and throw him overboard, otherwise
everybody in the boat goes down.” Day declined to comment
for this article.
Hours after he was fired, Gundlach returned to a private of-
fice he used in Santa Monica to find the lock on the front door
removed. Inside, he says, about seven private investigators
hired by TCW were searching through his desk and had broken
open his filing cabinets. Gundlach says he protested the intru-
sion and one of the investigators told him to leave the office im-
mediately. The TCW men discovered marijuana stored in jars,
drug paraphernalia, pornographic DVDs and a dozen “sexual
devices,” according to the company’s lawsuit. TCW alleges that
Gundlach’s possession of the material at an office it considered
part of the firm’s workplace violated its employment rules and
showed he wasn’t fit to manage money for clients or supervise
employees as the chief investment officer of the company.
undlach says the drugs, porn and sex
toys are relics from a closed chapter in
his life and were stored in a crate. He
says TCW disclosed their existence to
damage his reputation with investors.
“It’s ancient stuff, like a box in an at-
tic,” he says. “But they figured, ‘Let’s
try and destroy the guy and throw
some slander and sleaze on him.’”
Gundlach,whofavorscustom-made
Brionisuits,isequallyathomeopiningonthenuancesofthe
yieldcurveorthegeometryofPietMondrian’sgridlikepaintings,
whichhecollects.He’salsobluntandpronetopoundingtheta-
blewhenmakingapoint.Onthetradingfloor,Gundlachopenly
chastisesco-workersformistakesoreventheirchoiceofnecktie,
formercolleaguessay.“He’saprincipledandhonestguy,but
sometimeshegetshimselfintotroublebyspeakinghismind
withoutanysugarcoating,”saysFrederick
Horton,amoneymanageratTCWfrom
1993to2005andnowamanagingdirector
inNewYorkatStrategosCapitalManage-
mentLLC.“Itcancomeoffasarrogance,
butIdon’tthinkhemeansitthatway;it’s
justpartofhismakeup.”
Investors say Gundlach’s performance
backs up his bluster. His former flagship
mutual fund, the TCW Total Return
Bond Fund, gained 20 percent in 2009,
more than double his peers’ average of
8.6 percent, according to Bloomberg
data. The portfolio’s 7.8 percent annual
return during the decade ended on Dec. 4
beat the 7.6 percent performance of the
Pimco Total Return Fund run by Bill
Gross, co–chief investment officer at
Pacific Investment Management Co. in
Newport Beach, California, according to
Morningstar Inc. In July, the U.S. Treasury selected TCW
largely on the strength of Gundlach’s record as one of nine
managers for its Public-Private Investment Program to buy
distressed mortgage assets.
Gundlach got into the investing business by chance. He was
born in 1959, in Buffalo, New York, into a German-American
family of scientists. His father, Arthur, was a chemist at a paint
manufacturer, and his uncle Robert Gundlach, a physicist, was
the primary inventor of the modern photocopier at Xerox
Corp., according to the National Inventors Hall of Fame. After
graduating from Dartmouth College in New Hampshire with a
bachelor’s degree in philosophy and mathematics, Gundlach
AntoineAntoniol/Bloomberg
Frederic Oudea,
CEO of SocGen,
wanted to spin
off TCW.
G
THEMAKINGOFAFEUD
•Jan.26,2009:SocieteGeneraleannouncesplanstospinoffTCW;
Gundlachfearsalossofcontrol.
•Sept.3:GundlachconfrontsCEOSternaboutrumorshewillbefired,
spurringTCWtostartaprobeofthemoneymanager’steam.
•Dec.4:TCWfiresGundlach,whoformsDoubleLineinthenexttwoweeks.
•Jan.7,2010:TCWsuesGundlachforallegedlystealingtradesecretsand
possessingdrugsandpornography.
•Feb.10:Gundlachcountersues,accusingTCWofoustinghimtokeep
millionsinfeeshe’sowed.
5. bloomberg markets april 2010
52
enrolled in Yale University’s Ph.D. program in theoretical
mathematics. His thesis, “The Probabilistic Implications of the
Non-Existence of Infinity,” went against 20th-century mathe-
matical canon, which is based on the assumption that infinity
exists. He left Yale before completing his degree and moved to
Los Angeles in 1983.
Gundlach led a carefree existence on the West Coast, playing
drums for a rock band called Nuisance. One evening in 1985, he
watched the TV program Lifestyles of the Rich and Famous and
saw that investment bankers were the top-paid professionals in
America. Inspired, he flipped through the Yellow Pages, calling
investment firms. Gundlach, then 26, landed a 90-day proba-
tionary position as a quantitative analyst in the fixed-income
unit at Trust Company of the West for $30,000 a year.
ayfoundedTCWin1971.He’sthe
grandsonofWilliamKeck,thefounderof
SuperiorOilCo.inCoalinga,California,
whichwassoldtoMobilCorp.in1984for
$5.7billion.DaystructuredTCWasa
confederationofsemiautonomousbou-
tiquesratherthanahighlycentralized
firm,saysaformerTCWexecutivewho
knowshim.Dayplayedapaternalroleat
TCWbybestowingautonomyandgener-
ousfee-sharingagreementsonhisfavoredmoneymanagers,with
somekeepingmorethanhalftherevenuetheirteamsgenerated,
theexecutivesays.AtChristmas,hethrewagalaathisBeverlyHills
homeforhistoppeopleandtheirfamilies.A10-piecebandand
circusclownsentertainedguests.
AtTCW,Gundlachsayshedevouredthe1972 classicprimer
onbonds,InsidetheYieldBook,andstudieditsformulas.Heem-
bracedmortgagebondsandsetouttosolvewhathecalled“the
conundrumofprepaymentrisk.”Manyinvestorsavoidedmort-
gagebondsinthosedaysbecausewhenever
interestratesfell,borrowersrefinancedto
settlehomeloanslongbeforetheirterms
expired.Thatwipedoutgains,including
thosebasedonhigherinterestpayments.
Gundlachsaysmostmoneymanagers
erredbyusingpastpatternstopredict
ratemovesandprepaymentlevels.There
aretoomanyvariablestomakeaccurate
forecasts,fromFederalReservepolicyto
thehousingmarket,hesays.
Soworking with fellow money man-
ager Philip Barach, Gundlach developeda
systemcalled“scenarioanalysis.”Itmixed
bondsofvaryingcreditriskandduration
togethertoaccommodateanyratemove.
Thosebondsthatunderperformedwhen
ratesfellwereoffsetbyenoughwinnersto
produceprofits,Gundlachsays.
InMarch1989,DayagreedtoletGundlach
lead his own mortgage-backed securities investment team and
retain about half of its asset management fees to distribute to
his people as compensation, the money manager says. By late
1992, Gundlach had attracted $10 billion in investor assets and
the following June unveiled the TCW Total Return Bond Fund.
Day offered Gundlach the option to buy an equity stake in
TCW, which was coveted by money managers and senior execu-
tives. And the chairman sat his prized pupil next to former U.S.
Secretary of State Kissinger, a TCW director from 1981 to 2003,
at luncheons following periodic board meetings, Gundlach
says. “I was happy,” he says. “I believed.”
AcrosstheAtlantic,SocieteGeneraleCEOBoutonwasmoving
in2001tobecomeaglobalplayerafterlosinghisbidtoacquireri-
valParibasSAtoBanqueNationaledeParisSA.SocGen,which
wasprivatizedin1987following42yearsasastate-runinstitu-
tion,boughtbanksintheCzechRepublicandSlovenia.InJuly
2001,SocGenpurchased51percentofTCWfor$784millionand
agreedtopayabout$425milliontoincreasethestaketo70percent
overfiveyears;DayandTCWretainedtheremaining30percent
ofequity.Stern,alawyerwhojoinedTCWin1990afterservingas
presidentoflifeinsurerSunAmericaInc.,playedakeyrolein
negotiatingthedeal,saytwoformerTCWmoneymanagers.
SocGengrantednewequitystakesinTCWonlytosenioroper
atingexecutives,themoneymanagerssay.
Gundlach says he was furious because
the issuance of new equity diluted his
existing stake by a quarter, decreasing its
value by $15 million. Stern had violated a
pledge to never diminish his holding,
Gundlach says. “That’s absurd,” TCW
spokeswoman Erin Freeman says. “Soci-
ete Generale’s acquisition of TCW did in-
volve some dilution, and it was the same
for each shareholder commensurate with
the shares owned.”
In September 2005, the TCW board
elevated Gundlach to chief investment
officer as part of a move to bring the next
generation to power at the firm. Day re-
linquished his CEO title to Robert Beyer,
TimRue
D
FILE:tcwstk7
SIZE:19p6 x 12p7
SECTIONS:feature
DESIGNER:ev
NOTES:
Figures are through Dec. 31, 2009. Source: Bloomberg
Jeffrey Gundlach’s returns edged those of Pimco’s Bill Gross in
two key performance measures.
GUNDLACH TOPS GROSS
21%
14
7
1-year return 3 years 5 years
TCW Total Return Bond Fund
Pimco Total Return Fund
Bill Gross runs
the Pimco Total
Return Fund.
6. bloomberg markets april 2010
54
charlienucci
then 45, a former fixed-income money manager, and Stern
stepped aside as president to become vice chairman.
WhentheKervielscandalhitSocGeninJanuary2008,TCWwas
immediatelyaffected.Frenchregulatorsopenedaninsider-trading
probeofDay,thenaSocGendirector,afterheandhisfoundation
sold€148millionworthofthebank’sstockbeforeSocGenpublicly
disclosedthetradinglossesonJan.24,accordingtoregulatoryrec
ords.JoshPekarsky,aspokesmanforDay,saysDayusednoinside
informationwithrespecttothestocksalesandiscooperatingwith
theinvestigation.DayresignedfromSocGen’sboardonDec.31.
udea,46,SocGen’sformerchieffinan-
cialofficer,tookthehelminMay2008
withamandatetostaunchthebank’s
losses.Thecarnagewouldhavebeen
farworseforSocGenhadWashington
failedtoexecutea$182billionbailout
ofAmericanInternationalGroupInc.
in2008.SocGenheld$16.5billionin
credit-defaultswapsissuedbyAIG,
thelargestsuchexposure,according
tofilingswiththe SecuritiesandExchangeCommission.Under
adealarrangedbytheFederalReserveBankofNewYork,then
ledbyTimothyF.Geithner,theinsurersettledtheswapswith
SocGenandother AIGtradingpartnersat100centsonthe
dollar.Thedecisionspurredaccusations
fromU.S.CongressmembersthatGeith-
ner,whoisnowtheU.S.Treasurysecre-
tary,gavethebanksa“backdoorbailout”
attheexpenseoftaxpayers.(See“The
[Redacted]BailoutofAIG,”page61.)
Gundlach,too,wasinvestinginthe
exoticinstrumentsthathelpedfuelthe
crash.Underhisdirection,TCWbecame
theNo. 1managerincollateralized-debt
obligations,with$41.3billionunderman-
agementasofSept.30,2007,accordingto
datafromStandard&Poor’s.Thatincluded
$35.1billionofCDOscomposedofasset-
backedsecurities,includingmortgages.
GundlachsayshisCDOsrotatedoutof
high-riskhomeloansearlyinthecredit
crisisandescapedtheworstofit.
InJanuary2009,SocieteGeneralesaid
TCWwouldbespunoffinastockoffering
sometimeinthenextfiveyearsaspartofa
reorganizationofitsassetmanagement
division.Gundlachsaysheassumedthe
FrenchwouldsellTCWiftherightoffer
wasmade.AttheendofMay,Daysum-
monedGundlachtohishometomeetwith
himandStern.ThetwomentoldGundlach
thatBeyer,TCW’sCEO,wasabouttoan-
nouncehisretirementattheageof49and
SternwastobenamedCEO.Gundlach
blewup.“Iwaslike,‘No!No!Whatdoyou
meanyou’recomingback?Youturnedthis
overtothenextgeneration.Thisisallcom-
pletelytheoppositeofwhatIwasledtoex-
pect,’”Gundlachsays.Beyerdeclinedtocomment.
ThetwomenofferedtomakeGundlachpresident,whichhe
saysherejected.Gundlachhadneverforgottenthedilutionofhis
equitystakein2001,andhesaysheaccusedSternofstealing
$15 millionfromhim.Themeetingendedbadly.“Gundlach’s
claimsarewithoutmerit,”TCWspokeswomanFreemansays.
InlateAugust,Gundlachsays,heheardrumorsthatSternhad
convenedateamoflawyerstofirehim.OnSept.3,themoney
manageraskedSterntojoinhimandmembersofhisteamina
conferenceroomoffthetradingfloortocleartheair.Themood
wastenseasthemoneymanagerandtheCEOfacedoneanother,
accordingtoanaccountbyGundlachandBarach.Gundlach
askedSternwhetherhewasplanningtofirehim.Sternreplied
no.GundlachaskedwhetherSocGenwasgoingtosellthefirm.
Sternagainansweredno.Gundlachthenmadeanoralofferto
buy51percentofTCWfor$350million.Andseveralofhistop
lieutenants,includingBarachandmoneymanagerLouisLucido,
voicedsupportfortheirboss.“Justsoyouknow,ifanything
happenstoJeffrey,we’regoingwithhim,”Lucido,nowexecutive
vicepresidentatDoubleLine,sayshetoldStern.
O
Tania Modic’s
Western Invest-
ments Capital
placed money
with TCW.
7. bloomberg markets april 2010
Philip Barach, president
of DoubleLine, left TCW
to work with Gundlach.
56
davidstrick
ternconsideredGundlach’sbehavior
confrontationalandinsubordinateand
cameawayconvincedthemoneyman-
agernowposedathreattothewelfareof
thefirm,saysaTCWexecutivefamiliar
withStern’sviews.Gundlach’sinformal
buyoutbidwasrejected,JacquesRipoll,
head of SocGen’s global investment
group, wrote in a January e-mail to
BloombergNews.TCWlawyersstarted
readingGundlach’se-mailsandallegedlyfoundsomeinwhichhe
declaredwaronTCWandsolicitedhissubordinates’allegiance
tohim,accordingtothecompany’slawsuit.TCWinvestigators
monitoredandrecordedhisteam’scomputeractivity.
BeginninginearlySeptember,membersofGundlach’steam
allegedlystarteddownloadingdataoneveryholdingofevery
clientinthemortgage-backed-securitiesgroupandcontactin-
formationformorethan24,000TCWclientsfirm-wide,accord-
ingtothesuit.Gundlach’sdeputiesalsoengagedacommercial
real estate agent to find an office that could accommodate a
50-desktradingfloorandregisteredthename
DoubleLine on Nov. 22 in Delaware, the com-
plaint says.Attheendofthemonth,Sternbriefed
Ripollandreceivedhisblessingtotakethenext
step,theTCW
executivesays.
Afterlunchon
Friday,Dec.4,
Gundlachwasat
hisdeskonthe
16thfloorwhenhe
gotacallfrom
MichaelCahill,
TCW’sgeneral
counsel,asking
himtocomeup
oneflighttotheex-
ecutivesuite.Stern
wasn’tthere.CahilltoldGundlachhisTCWcareerwasover,the
moneymanagersays.TheattorneytriedtogiveGundlachalegal
documentdescribinghowheandhisteamtookconfidentialin-
formation.Gundlachsaysherefusedtotakeitandturnedtogo,
sayinghehadtradestocomplete.Cahilltoldhimhecouldn’tre-
turntohisdesk.Gundlachsaysheduckedintoastairwelland
Cahillandanotherlawyerfollowedhimdown17
flightstothestreet,demandinghetakethepa-
pers.TheygaveupasGundlachtookoffalong
FigueroaStreetindowntownLosAngeles.Cahill
declinedtocomment.
Gundlachsayshedidaskdeputiestofindof-
ficespaceandregisterDoubleLineincaseTCW
firedhim.Hedeniesdirectingemployeestosteal
clientdataoranyothertradesecrets.
InthetwoweeksafterGundlachwasousted,
morethan40membersofhisTCWteamquitto
joinDoubleLine.BarachisnowDoubleLine’s
president.OaktreeCapitalManagementLP,a
LosAngelesfirmwith$67billioninassets,in-
vestedanundisclosedsuminDoubleLinefora
22percentstake.
InhisFeb.10answertoTCW’slawsuit,
GundlachsaysDoubleLinehashiredafirmto
searchcomputersbelongingtoformerTCWem-
ployeesandreturnanydatathatmightbeintheir
possession.“DoubleLine’sestablishmenthas
notinvolvedtheuseofanyTCWinformation
whatsoever,”Gundlachsays.
Gundlach contends that TCW canned him
largely to capture all of the fees from funds that
he and Barach set up in 2007 to invest in dis-
tressed mortgage-backed securities, including
two with $3 billion in assets. Gundlach says the
strategy returned 60 percent in 2009. Along
with revenue from his other funds, Gundlach
says he was personally eyeing a payday of about
$500 million over the next few years. “They just
wanted to broom-sweep me out and shanghai
my business,” he says.
S
GUNDLACHINVESTED
INEXOTICINSTRU-
MENTSTHATHELPED
FUELTHECRASH.
TCWBECAMETHE
NO.1MANAGEROF
COLLATERALIZED-DEBT
OBLIGATIONS,WITH
$41.3BILLION
UNDERMANAGEMENT.
8. 58
bloomberg markets april 2010
JeffreyGundlachformedTCW’sflagshipTCWTotalReturnBond
Fundin1993.TypeTGLMXUS<Equity>DES<Go>foradescription
ofthefund’sassetsundermanagementandreturns.TypeMHD
<Go>foralistingoffundholdings.
YoucanusetheHistoricalFundAnalysisfunctiontocompare
theperformanceoftheTCW
TotalReturnBondFundwith
thePimcoTotalReturnFund.
First,typeTGLMXUS<Equity>
HFA<Go>,andthenclickonthe
arrowtotherightofVs.andse-
lectSingleFund.Finally,enter
PTTRXUS<Equity>inthefield
thatappearstothefarrightof
Vs.andpress<Go>tocompare
thereturnsofthetwofunds,as
shownatright.
YoucanusetheBloomberg
Law Search (BBLS) function to search for documents related to
legal proceedings brought againstGundlach by TCW. Type BBLS
<Go>, click on United States and then on All United States so
that the search criterion appears under Selected Sources at the
bottom of the screen. Tab in to the Enter Search Terms field,
enter JEFFREY GUNDLACH
and type <Go> 1 <Go>.
To see the docket for
TCW’s case against Gundlach,
including a summary of pro-
ceedings, click on the item
titled Trust Company of the
West vs. Jeffrey Gundlach et al,
Docket No. BC429385. Click on
1 under Docket Proceedings to
request a copy of the initial
complaint filed on Jan. 7, 2010.
BETHWILLIAMS
TCW’sFlagshipFund
To write a letter to the editor, type MAG <Go> or send an e-mail to
bloombergmag@bloomberg.net.
Freeman disputes that allegation. “He was let go because he
stole from the company,” she says.
TCW said it planned to start an equity-based compensation
plan in the first quarter to retain employees. “The priority now
is to concentrate on moving the business forward,” Ripoll
wrote in an e‑mail on Feb. 11.
TCW’sstandingwithclientshasbeenshakenbyitsfiringof
Gundlach:In
December,TCW
saiditwouldliqui-
dateits$1billion
PPIPfundfordis-
tressedassetsafter
Gundlach’sdis-
missal triggereda
so-called key-
man clauseand
promptedtheTrea-
surytofreezethe
firm’sparticipation
intheprogram.In-
vestorspulledmore
than$6billioninassetsfromtheTotalReturnfundbetweenDec.4
andFeb.8,accordingtoMorningstar.InJanuary,pensionfundsin
Colorado,KansasandTexaswithdrewatotalof$1.2billionfrom
TCW.“Wedecidedtoterminatebecausewe’renolongergetting
theteamwesignedupfor,”saysRobertSmith,chiefinvestment
officerattheKansasPublicEmployeesRetirementSystem.
InvestorsinTCW’sdistressedfundsarelividthattheirholdings
havebecomepawnsinthedispute,saysTaniaModic,CEOof
WesternInvestmentsCapitalLLCinInclineVillage,Nevada,
whichput$10millioninthefunds.ClientsaskedTCWtopermit
themtomakeso-calledin-kindtransfersofassetstoanotherfirm
sotheydon’thavetoliquidatethesecuritiesintocash.TCWsaysit
declined,offeringanoptiontoslashfeesto1 percentonassetsand
5 percentonprofitsfrom2percentand20percent.Modicsaysit
appearsthatTCWwouldratheralienateitsclientsthanseethem
transfertheirassetstoDoubleLine,whichiswhatshewantstodo.
“Somethinghappenedtogettheirpantiesinatwistbecausetheir
behaviorisbizarre,”Modicsays.“Thisshowsgrossdisrespectfor
investors.”FreemansaysTCWistreatingitsinvestorsfairly.
Gundlachisalsofeelingthefallout.TCWisseekingatleast
$200millionindamagesfromDoubleLineandwantsittorelin-
quishitsrevenue.ThelawsuithashinderedDoubleLinefrom
raisingassetsbeyondthe$3billionbroughtinsofar,Gundlach
says.PensionconsultantRuesayshe’sadvisedinstitutionalin-
vestorsnottocommitcapitaltoDoubleLineuntilthelitigation
playsout.
AtDoubleLine’soffices,locatedafewblocksfromTCW,
Gundlachstridespastelectriciansworkingonhishalf-completed
trading floor and points to a spot where he plans to blow a hole
in the ceiling and install a minimalist sculpture by the late artist
Donald Judd. Gundlach, after more than two decades managing
money, is now starting over. This time around, with a lawsuit
threatening his new firm, he may find that repairing a career can
be harder than building one. ≤
Edward Robinson is a senior writer at Bloomberg Markets
in San Francisco. edrobinson@bloomberg.net Sree Vidya
Bhaktavatsalam covers mutual funds at Bloomberg News in
Boston. sbhaktavatsa@bloomberg.net
TCWINVESTORSARE
LIVIDTHATTHEIR
HOLDINGSAREPAWNS
INTHEDISPUTE.‘SOME-
THINGHAPPENEDTO
GETTHEIRPANTIESIN
ATWIST,’TANIAMODIC
SAYS.‘THISSHOWS
GROSSDISRESPECT
FORINVESTORS.’