Jury awards Gundlach $66.7 million in TCW dispute

LOS ANGELES (Reuters) - Star bond investor Jeffrey Gundlach was awarded $66.7 million by a jury over his messy divorce from money management firm Trust Company of the West, in one of the ugliest battles ever to grip the normally staid bond-fund world.

A six-week trial pitting the fund manager against his former employer engrossed the financial industry, offering a peek inside the inner workings of big investment firms and the out-sized personalities who run them. Both sides sued each other after Gundlach was fired from TCW in December 2009 and he set up a rival money management firm, DoubleLine Capital.

The state jury awarded TCW, a unit of French bank Societe Generale , no punitive damages, but it did find that Gundlach and his co-defendants breached their fiduciary duty to the firm and took trade secrets. TCW attorney Susan Estrich said after the verdict that the company would seek $89 million in damages from the judge for the trade-secret violation.

In some ways, Gundlach had already won the bruising battle. In less than two years, his new firm has taken in $15 billion in assets under management.

During the trial, jurors heard testimony about tirades against TCW by Gundlach in the company cafeteria, about a power struggle in which Gundlach wanted to become the firm's chief executive and even about a hard drive taken from TCW's offices in the bra of a woman who worked for Gundlach.

One thing that did not come up at trial was evidence allegedly showing that Gundlach, 51, kept a stash of drugs and pornography in his office. Before trial, the judge ruled this "unrelated evidence" could not be introduced.

"We are gratified by the jury's verdict, which speaks directly to the principles at the heart of this case -- integrity, honesty and trust," TCW said in a statement after the verdict. A DoubleLine representative was not immediately available for comment.

TRADE SECRETS

TCW fired Gundlach in December 2009 and sued him a month later, accusing him of stealing trade secrets, plotting to form a new company using TCW proprietary information, and gutting the firm of its entire mortgage-backed securities team.

Gundlach fired back with a counter-lawsuit, alleging that his former employer owed him hundreds of millions of dollars in compensation and had secretly plotted to fire him when he was chief investment officer.

In the weeks following his termination, Gundlach went on to form DoubleLine, along with three of his co-defendants at the trial. Roughly 45 TCW employees, largely from the mortgage-backed securities group, followed.

Gundlach's new mutual fund, the DoubleLine Core Fixed Income Fund , has gained 11 percent over the past 12 months, beating all of the more than 1,000 competing funds in its category, according to financial research firm Morningstar.

The list includes both his old firm's TCW Core Fixed Income Fund , which gained 6.45 percent, as well as famed Pimco manager Bill Gross's Pimco Total Return Fund , which gained only 3.22 percent.

During the trial, jurors heard testimony from Gundlach that he was indirectly approached by Pimco, formally known as Pacific Investment Management Company, to join the giant bond firm. Two witnesses also testified that Gundlach discussed succeeding Pimco's Gross, his long-time rival.

Gundlach and Gross were both contenders for Morningstar's Fixed Income Manager of the Decade award for 2000-2009, an award that Gross ultimately won.

TCW struggled with outflows after Gundlach left and it replaced Gundlach's mortgage-backed securities group with fixed income managers from MetWest. Institutional investors yanked $20.5 billion from TCW in 2010 and another $300 million in the first quarter of 2011, according to eVestment Alliance, a market research firm in Atlanta.

"LOVED TCW"

Gundlach took the stand several times at the trial. He testified that before he was fired, he feared being pushed aside and that TCW chief Marc Stern tried to drive a wedge between Gundlach and his close-knit mortgage-backed securities team.

Jurors were shown a video deposition in which Gundlach said he never told anyone on his staff to download data from TCW or copy valuable trading information -- though he said he did briefly consider such an action.

"I loved TCW," he told jurors at one point. "I wasn't going anywhere."

The trial experienced a brief hiccup when Gundlach spoke with two jurors in a courthouse elevator after a day on the witness stand, telling them, "I feel bad for you guys," after thinking they were talking to him.

The judge admonished Gundlach and the jurors, but he ultimately considered the incident a minor mishap.

The case is in Superior Court of California, County of Los Angeles is Trust Co of the West v. Jeffrey Gundlach et al,

BC429385.

(Reporting by Mary Slosson in Los Angeles; additional reporting by Aaron Pressman in Boston)