Funds News

UPDATE 2-Ex TCW manager Gundlach seeks $1.25 bln in damages

* Says wrongfully dismissed by Societe Generale unit TCW

* Says erased all data belonging to TCW

* TCW says Gundlach’s spin on his termination erroneous

(Adds details from filing, byline)

By Aaron Pressman

BOSTON, Feb 10 (Reuters) - Former TCW bond fund manager Jeffrey Gundlach fired back at his old employer on Wednesday, charging the firm owed him and his team as much as $1.25 billion under a 2007 “oral agreement.”

In a response to TCW’s Jan. 7 lawsuit against him, Gundlach said he was wrongfully dismissed and he denied stealing any of the firm’s intellectual property.

Los Angeles-based TCW, a unit of French bank Societe Generale SOGN.PA, fired Gundlach in December, saying he was about to quit and start a competing firm.

“I believe the facts stack up overwhelmingly on our side,” Gundlach said in an emailed statement. “I would be delighted to see this case go to trial tomorrow, if that were feasible.”

Gundlach, who was named Morningstar’s bond fund manager of the year in 2006, worked at TCW for more than 24 years and oversaw about $65 billion of the firm’s $110 billion of assets when he was fired on Dec. 4.

Less than two weeks later, he opened a new firm, DoubleLine Capital LP, and was joined by more than half of the fixed-income team he oversaw at TCW.

Gundlach alleges in the response that he was fired because TCW wanted to avoid paying him and his team some $600 million to $1.25 billion in performance fees on mortgage investment funds set up in 2007.

The payments are owed as part of an “oral agreement” Gundlach struck in February or March 2007 with TCW’s then-CEO Robert Beyer and then-president William Sonneborn, according to the response, which was filed in California Superior Court. Sonneborn left TCW in 2008 and Beyer retired in June 2009.

The 2007 funds, known as Special Mortgage Credit Funds I, II and IIB, were designed to buy up mortgage-backed securities at distressed prices amid a market panic. The successful investment strategy has subsequently generated “enormous profits,” according to Gundlach’s filing.

To avoid paying the performance fees, TCW and Societe Generale “sought to alienate Gundlach and to undermine what TCW knew was the basis for his continued willingness to work at his long-time employer,” the filing stated.

In the filing, Gundlach and other former TCW executives take issue with facts contained in TCW’s lawsuit. Both sides agree a confrontational meeting between Gundlach and TCW CEO Marc Stern occurred on Sept. 3, when Gundlach offered to buy a controlling stake in the firm.

But Gundlach, in Wednesday’s filing, denied Stern ever gave him a response to his offer. TCW said in its lawsuit that Stern took the offer to SocGen executives and, after they rejected it, told Gundlach the offer was declined.

Gundlach also denied stealing any of TCW’s intellectual property to help establish his new firm, as his former employer alleged. DoubleLine implemented “significant remediation measures” to avoid any improper transfer of data, including hiring “a highly-reputed third party computer expert” to erase all TCW data from its computer devices, the filing stated.

TCW said it would refute all of Gundlach’s claims in court.

“Mr. Gundlach’s spin regarding the reasons for his termination are completely erroneous,” the firm said in a statement.

“As is well documented, this comes from an individual who earned $40 million dollars last year and $135 million over the past five years.”

In its lawsuit filed last month, TCW said its former manager misappropriated trade secrets, interfered with the firm’s contractual relationships with clients and committed civil conspiracy among other charges.

Drugs and pornographic materials, discovered in Gundlach’s office after he was fired, violated the firm’s employment regulations, the lawsuit said. TCW sought damages of at least $200 million and rights to all of DoubleLine’s revenue and profits.

At the time Gundlach was fired, TCW announced it had purchased cross-town rival Metropolitan West Asset Management LLC, which won Morningstar’s top honor in 2005. The fixed income firm, led by Tad Rivelle, managed about $30 billion. (Reporting by Aaron Pressman; editing by Tim Dobbyn and Andre Grenon)