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Bill Gross' Big Swing at Pimco Seen Hinging on Contract Issue

Image: Bill Gross' Big Swing at Pimco Seen Hinging on Contract Issue
Bill Gross (Pimco)

Saturday, 10 Oct 2015 11:24 AM

Bill Gross is taking a big swing at Pimco. Landing the blow won’t be easy.

The co-founder of bond giant Pacific Investment Management Co. decried the way executives formed a “cabal” to force him out in an alleged plot to divvy up his 20 percent share of the bonus pool.

While Gross’ lawsuit gives his side of the internal war that led to his departure, what it doesn’t mention is any written employment contract that would bar him from being shown the door.

“You can’t get more sophisticated than these guys,” said attorney Gregory Aldisert. “But without a written contract he would likely be terminable at will.”

Gross left Pimco last year, days before the end of the third quarter. In his lawsuit, he said the timing wasn’t a coincidence: It was done to avoid paying him a large chunk of an annual bonus totaling $250 million.

Both companies reject the lawsuit, filed in California state court, as being “without merit.”

‘Weak’ Claims

Aldisert, of the law firm Kinsella Weitzman Iser Kump & Aldisert LLP in Santa Monica, said it’s hard to evaluate the merits of a lawsuit based only on the initial complaint. Still, Gross’ claims that he had an enforceable agreement based on a meeting shortly before he was terminated, and that his election to a five-year term as chief investment officer guaranteed his employment, appear “weak,” the lawyer said.

Greg Doll, a litigator with Doll Amir & Eley LLP in Los Angeles, was less charitable. He called the case an attempt at historical spin “with a lawsuit attached to it.”

“Gross is using the California litigation privilege for a well-orchestrated PR campaign,” Doll said.

Cheap Seats

Gross’ lawyer, Patricia Glaser, said the lack of a written contract doesn’t bar his suit, and labeled the contention the case is a public relations ploy “punditry from the cheap seats.”

“There’s plenty of written material that supports his claims,” Glaser said.

Gross said Allianz Chief Executive Officer Michael Diekmann offered him a deal about a week before his September 2014 ouster. Under it, Gross would assume a reduced role and have his bonus cut in half “to placate” managing directors seeking more money. A few days later, Pimco executives revoked the deal, Gross said. Instead, they told him he could stay at the company until December, or be terminated immediately.

Doll said such a constructive termination claim implies Gross’ life was made so miserable he was forced to leave. Making that stick however will be tough, the lawyer said, since the company wanted to move away from Gross’ conservative investment strategy.

“Changing the direction of the company doesn’t count as constructive termination," said Doll. “On the other hand, he’s got some credibility in the sense that he built the company, ran it for 40 years and did a fine job.”

Doll and Aldisert aren’t involved in Gross’ case.

Bonus Payment

Gross also says he was wrongfully deprived of his bonus, an argument Doll sees as more promising, and a claim Glaser said is the essence of her client’s lawsuit.

A copy of Pimco’s profit-sharing plan was included with Gross’ complaint, filed Thursday in state court in Santa Ana, not far from the firm’s Newport Beach headquarters. The document says employees are entitled to their bonus for the quarter before the one in which they depart.

The plan states that a participant isn’t entitled to a bonus for the quarter in which they leave unless it was the result of death or permanent disability. Gross said in his lawsuit that Pimco’s “usual custom and practice was to pay departing employees an appropriate share for partially completed quarters.”

Glaser disputed that the language of the profit-sharing agreement implies Gross isn’t entitled to the bonus for his last quarter.

Doll said that an argument Gross was forced out because Pimco didn’t want to pay him may work if the case gets to trial.

“It’s the kind of argument that would have some traction with a jury,” he said.

History’s Portrayal

For Gross, 71, who’s worth about $2 billion according to the Bloomberg Billionaires index, the fight doesn’t seem to be about the money — he pledges to give any award or settlement to charity. It may be more about his reputation and how history will portray a storied career in money management, the lawyers said. 

The lawsuit contains Gross’s account of the events leading to his ouster, a move that prompted record redemptions from Pimco, which managed about $2 trillion in assets at its 2013 peak. He portrays himself as an old-school, principled advocate for customers — a champion of lower fees and traditional, lower-risk bond investments.

His antagonists are depicted in the lawsuit as the more modern Wall Street archetype — inclined toward riskier assets and higher-fee products to feed personal wealth at customer expense.

No ‘Wimp’

Gross said in May he’d been a “wimp” for not standing up for himself. Now, he says he wants to expose “improper, dishonest, and unethical behavior” by the managers who ousted him.

Gross didn’t name any Pimco executives as defendants in his lawsuit, instead designating 100 unidentified “Does” as individuals he may add to his lawsuit at a later date.

In his complaint, he said Pimco money manager Andrew Balls leaked information to the media to harm him, and that another money manager, Dan Ivascyn, “hatched a plan” to oust him. Gross claimed Ivascyn found an ally in Brent Harris, who opposed proposals by Gross to lower mutual fund fees, and the two went on to recruit other executives who stood to gain from upheaval. All three didn’t respond to requests for comment.

Gross left Pimco on Sept. 26, 2014, joining Janus Capital Group Inc. in Denver to run a small bond fund.

Riskier Investments

Despite Gross’ narrative about how righteous opposition to risk led to his downfall, he may not be able to make a case why his firing was wrongful, said Michael Waterstone, a Loyola Law School professor in Los Angeles.

That said, his lawyers can amend the complaint to shore up their claims, as is often done. And if the lawsuit survives any attempt to dismiss it, they may get to question Gross’ former colleagues and seek company files and e-mails — perhaps making a settlement more probable.

But the absence of a written contract is “the big elephant in the room,” Waterstone said. Gross will have to show that the agreement he says he had with Diekmann, and any other evidence, create an enforceable agreement that supports his claims.

“That will determine how this case is going to develop,” Waterstone said.

Very Unusual

Stephen Ma of the law firm Early Sullivan Wright Gizer & McRae LLP in Los Angeles said the lack of a written contract for someone at Gross’s level is “very unusual.”

His breach-of-contract claim will hinge on how the profit- sharing agreement is interpreted under California law, and how it applies to what happened, said Ma, who isn’t involved in the case.

“This was a very public power struggle and now Pimco will have a chance to tell their side of the story,” the lawyer said. “This could become a high-profile slug fest.”

The case is Gross v. Pacific Investment Management Co., 30-2015-00813636-CU-BC-CJC, California Superior Court, Orange County (Santa Ana).


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Bill Gross is taking a big swing at Pimco. Landing the blow won't be easy.The co-founder of bond giant Pacific Investment Management Co. decried the way executives formed a "cabal" to force him out in an alleged plot to divvy up his 20 percent share of the bonus pool.While...
bill gross, pimco, lawsuit, contract
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2015-24-10
Saturday, 10 Oct 2015 11:24 AM
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