TCW Files Suit Against Former CIO Gundlach

The wake of TCW's dismissal of Jeffrey Gundlach turned rockier Thursday, with TCW filing a lawsuit against its former CIO and his new firm, DoubleLine, alleging breach of fiduciary duty, unfair competition, and misappropriation of trade secrets, among other complaints.

Specifically, the suit alleges that "Gundlach, with other TCW fiduciaries, secretly organized DoubleLine back in October 2009 and laid the groundwork for its launch ... [which] included theft of vast quantities of TCW proprietary information including detailed information about TCW's clients." The complaint also asserts that "Gundlach lied to TCW's clients in an attempt to incite them to abandon TCW," telling them that "TCW had sacrificed investors' interests to further TCW's own financial interests."

Gundlach, the former manager of the  TCW Total Return Fund (TGLMX), was dismissed from TCW on Dec. 4, amid rumors that he and his team might jump ship, though Gundlach had denied the allegations.

By mid-December, Gundlach had established a new venture, DoubleLine, with the backing of L.A.-based Oaktree Capital Management. When we spoke to Gundlach on Dec. 15, he said that about 40 former TCW employees had followed him. On Dec. 23, DoubleLine announced that the SEC had approved the firm's application for registration under the Investment Advisers Act, and reiterated its early 2010 target for rolling out DoubleLine funds.

In the complaint, TCW states that one of the reasons behind Gundlach's dismissal "was that TCW had discovered evidence of [Gundlach's] and the other Defendants' conspiracy to misappropriate TCW's confidential, proprietary and trade secret information" and further alleged that Gundlach's "behavior had become erratic, increasingly and openly confrontational." Additionally, the complaint said that on the day of Gundlach's dismissal, it discovered inappropriate contraband in Gundlach's TCW offices (one located in downtown L.A. and one in Santa Monica), including marijuana, drug paraphernalia, and pornography.

Reached by phone Thursday evening, Gundlach called the allegations "shabby, groundless, and pointless, serving no purpose but an attempt to embarrass me and [DoubleLine]." He further stated that he "never said anything untrue about TCW" to TCW clients, but had simply "contrasted the depth and experience of my [DoubleLine] team" to the newly installed TCW team.

He said the allegations would be easy to fight and would not interfere with the progression of DoubleLine's operations. He also stated that the contraband discovered by TCW did not belong to him and may have been left by a cleaning crew.

Gundlach also released a letter in response to the suit, in which he formally responds to what he calls "certain smears and innuendoes" that he states were disseminated by TCW.

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