More On Legal & Compliancefrom The Advisor's Professional Library
- Trading Practices and Errors When SEC-registered investment advisors conduct annual audits of firm policies and procedures, they should pay close attention to trading practices. Though usually not required to, state-registered advisors should look at their trading practices and revise policies that do not fully protect clients.
- RIAs and Customer Identification Just as RIAs owe a duty to diligently protect their clients privacy and guard against theft, firms also play a vital role in customer identification. Although RIAs are not subject to an anti-money laundering rule, securities regulators expect advisors to address these issues in their policies and procedures.
A jury has awarded Jeffrey Gundlach and co-defendants $66.7 million but found he breached his fiduciary duty and violated trade secrets when the star fund manager broke off from TCW to start rival firm DoubleLine Capital.
In a six-week trial centered on issues of splitting fees and split loyalty, the Los Angeles jury found that fund manager TCW owed defendants unpaid wages earned before TCW, which is owned by Paris-based Societe Generale, fired Gundlach (left) in 2009.
Gundlach has sought some $500 million in damages on the entirety of earnings he would have had coming to him through this year based on his contract with the firm. He claims TCW fired him to avoid having to pay performance fees on a hot fund that outperformed the competition and was a magnet for investors.
On the breach of fiduciary duty charge, the jury found Gundlach guilty but awarded no damages to TCW because Gundlach had not acted with malice. The Los Angeles Times reports Gundlach emerged from the jury verdict on Friday with a victorious smile, saying it’s “67-to-0” in terms of the jury’s disposition of damages.
But it will be Los Angeles County Judge Carl West who decides what if any damages Gundlach must pay to TCW on the charge that he misappropriated trade secrets. The charge stems from the fact that just weeks after his firing in December 2009, Gundlach along with about half of TCW’s fixed-income staff formed rival firm DoubleLine Capital. TCW claims DoubleLine wrongfully gained processes, methods and client data from his former firm, where over two decades the superstar manager had attracted tens of billions of dollars in assets under management.
DoubleLine has competed highly successfully with its former firm and indeed the entire fixed-income universe, quickly amassing $16 billion in assets under management, according to a DoubleLine spokesman. Its flagship bond fund has risen nearly 12% in the past year and beaten 99% of its peers, the Los Angeles Times reports.
Neither DoubleLine nor TCW responded to inquiries for this report as of press time, but TCW's general counsel issued the following statement:
"We are gratified by the jury's verdict, which speaks directly to the principles at the heart of this case—integrity, honesty and trust. The jury found that each of the defendants violated these principles—that each one of them breached their fiduciary duties and stole trade secrets and that Jeffrey Gundlach wrongfully and intentionally interfered with TCW's business.”
In an interview with AdvisorOne last month, Gundlach advised investors to “stay conservative,” seeing no buy opportunities in today’s markets, which he compared to the precipice of 2008. The widely followed manager was named by Morningstar as Fixed Income Manager of the Year in 2006 and nominated in 2009 for Fixed Income Manager of the Decade.