Tags: Bill Gross | PIMCO | lawsuit | sue

What Can Be Learned From Bill Gross' Suit Against PIMCO?

Image: What Can Be Learned From Bill Gross' Suit Against PIMCO?
Bill Gross (Getty)

By    |   Friday, 09 Oct 2015 06:42 AM

Thursday was another routine triple-digit up day for the Dow, which rose nearly 140 points and kept open the possibility that there might be a genuine year-end rally rather than one that needs to be engineered by the Fed. The next hurdle is how the earnings season will affect the market.

Against this background and a volatile market created by the Fed’s prolonged ZIRP policy comes the news that one of the world’s leading bond fund managers, Bill Gross, is suing his former company PIMCO for $200 million on the ground that he was wrongfully forced out.

Gross has moved on to Janus, and his long-term right-hand man Mohamed El-Erian is now at Allianz, and on the surface there are strong incentives to move on and not drag the principals and their enterprises through potentially lengthy, complex, and costly litigation.

If one were to bet, after assembling fantasy dream teams of lawyers for both or all sides, one would have to bet that at some point the lawyers will figure out how much the case is worth and settle for the proverbial “undisclosed amount.”

In the meantime the case could stand as an example of how the environment created by the Federal Reserve’s ZIRP policy led investors and their managers to “reach for yield.” The brand-name managers would be well situated to devise a strategy to gain significant market share. There is always the temptation to go a bit too far and stay a bit too long.

If that is what happened in this case, which remains to be seen, will the fund’s board take this philosophically, or will it discharge management? If management is discharged, will it accept this result in the spirit of “that’s baseball,” or will it sue the fund? If a leading fund such as PIMCO can come to this point, how many cases may be forthcoming that will involve funds with fewer resources to devote to internal strife, and how will they be resolved?

If the case isn’t settled promptly, it will move to an expensive and potentially debilitating discovery phase in which expensive lawyers will work to gain access to massive documentation and then engage less expensive paralegals to comb through them, then bring in expensive experts to help establish the equities.

For students of finance and corporate governance, this could yield a treasure trove big enough to inform more than one future candidate for Best Picture.  Managers of other big funds will cross their fingers that the case will be settled.

Bill Gross’ lawyer Patricia Glaser, Partner with Glaserweil, is interviewed by CNBC’s Brian Sullivan, who posts a quotes from Gross accusing his former employer PIMCO of being “driven by a lust for power, greed, and a desire to improve their own financial position and reputation at the expense of decency,” that “a cabal of (PIMCO) managing directors plotted to drive Bill Gross out of PIMCO, in order to take, without compensation, Gross’s percentage ownership in the profitability of PIMCO.

Their improper, dishonest, and unethical behavior must now be exposed.” Gross’ side further contends that “(his) ongoing success at PIMCO proved his undoing. In the minds of certain younger executives at PIMCO, Mr. Gross’ ongoing presence at the company checked their own financial and career ambitions.” Gross alleges that the executives sought to claim for themselves bonuses to which Gross was entitled.

At a minimum, this case could prompt fund managers worldwide to ask whether this could happen to their funds and what measures they can take to prevent such litigation.

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Robert-Feinberg
At a minimum, this case could prompt fund managers worldwide to ask whether this could happen to their funds and what measures they can take to prevent such litigation.
Bill Gross, PIMCO, lawsuit, sue
589
2015-42-09
Friday, 09 Oct 2015 06:42 AM
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