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PIMCO Founder Leaves Company Then Sues It

June 06, 2016

Posted in Uncategorized

photo - PIMCOBill Gross, the billionaire “Bond King” and the person who co-founded the Pacific Investment Management Co. (PIMCO) in 1971 no longer is part of the company and is suing it. The Newport Beach company was sued in state court in Orange County in October. The lawsuit alleges Gross was forced out by a “cabal” of other executives seeking his bonus, resulting in a loss of $250 million, according to Reuters. Forbes estimates Gross’ net worth is nearly $2 billion.

This is a case of a messy split up of a co-founder of a business and its current management. While Gross portrays his forced resignation the product of greed and conspiracies by others, PIMCO defends itself by stating,

  • It’s simply a parting of the ways. Gross and PIMCO’s management couldn’t agree on how the company should move forward into the future.
  • The returns on the investments Gross has been making have been declining and clients have moved their money out of the company.
  • The assets Gross managed peaked at $293 billion in April 2013 but have since dropped by about two-thirds to less than $100 billion.

PIMCO says the lawsuit “has no merit” and is “reputational warfare” which fails to claim Gross’ contract was actually breached. The defendant states,

  • Gross could have been fired at any time without cause,
  • The complaint uses irrelevant and false personal attacks on Gross’s former colleagues, and
  • Gross should move on with his life, just as PIMCO is moving on without him.

Gross has a more dramatic take on events. According to the lawsuit,

  • A “cabal” of PIMCO executives including Daniel Ivascyn, his successor as chief investment officer, plotted to oust him out of “a lust for power, greed, and a desire to improve their own financial position and reputation.”
  • The ouster deprived him of most of a back-loaded bonus expected to top $250 million in 2014.
  • Younger executives wanted Gross to leave so they could split his annual bonus, which would be 20% of PIMCO’s bonus sharing pool.
  • Mohamed El-Erian, a former PIMCO co-chief investment officer, leaked negative information about him to the press.

An attorney representing Gross claimed “all proceeds” from the legal action will be donated to charity, including the PIMCO Foundation. Gross landed on his feet after leaving PIMCO and now runs the $1.4 billion Janus Global Unconstrained Bond Fund. Gross’ problems may be continuing despite his new job. Morningstar Inc. estimates his fund has underperformed three-quarters of its peers this year.

The Gross case is a well publicized version of a lawsuit that’s not uncommon. If there are multiple founders of a business or a founder later shares ownership with investors not everyone will be on the same page as time goes on. There may be differences of opinions on how the business is run or allegations of wrongdoing by one party against another. A well thought out and well drafted partnership or shareholder agreement is a good way to promote a more amicable splitting of the ways and reduce the risk of legal action.

If you’re a part owner of a business that could be facing a serious breakdown in consensus in how the business should be run, contact our office so we can talk about the business, how the parties see things differently and the options you can take to protect your interests and legal rights.