18 May 2024

Bill Gross Sues Pimco for Breach of Contract

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Bill Gross sued his former employer, Pacific Investment Management Co., and its parent company on Thursday for breach of contract, alleging that managing directors plotted to drive the famed bond investor out of the firm because of “power, greed, and a desire to improve their own financial position,” according to court documents. Mr. Gross, a co-founder of Newport Beach, Calif.-based Pimco and the firm’s former chief investment officer, abruptly left the company in September 2014 after a year of heavy outflows from his flagship bond fund and disagreements with the firm’s other executives, The Wall Street Journal reported at the time.

The lawsuit alleges that by forcing Mr. Gross out, younger executives would be able to split his share of the firm’s well-known bonus pool. For Mr. Gross, that amounted to about $16 million in the first two quarters of 2014, with $80 million more expected later in the year, according to the suit. Mr. Gross alleges that Pimco has refused to pay him his third-quarter bonus of $80 million, despite his leaving just days before the end of the third quarter of 2014.

Mr. Gross, a billionaire, is demanding a jury trial and damages of no less than $200 million, according to the 19-page complaint, filed in the Superior Court of the state of California for the county of Orange. The suit also names Allianz Asset Management of America, a unit of Pimco’s German-based parent company, Allianz SE.

The suit details for the first time Mr. Gross’s version of the trouble between him and former Pimco Chief Executive Mohamed El-Erian, who left the company in early 2014 after clashes with Mr. Gross, according to court documents. Mr. El-Erian, still an adviser to Allianz, disagreed on the direction of the firm, the suit alleges. Mr. El-Erian wanted Pimco to shift away from its core focus on bonds and become a more general-purpose investment-management firm that also offered stocks, commodities and hedge-fund products to investors.

As a result of the differences, Mr. Gross says in the suit that he offered to step back from Pimco’s investment committee in favor of Mr. El-Erian. That move prompted Mr. El-Erian to abruptly announce his resignation, according to the complaint.

The lawsuit also goes into the details leading up to Mr. Gross’s departure from Pimco in September 2014, many of which have been chronicled in a series of stories in the Journal.

Mr. Gross says in the suit that his relationship with Pimco reached a breaking point when managing directors, including group chief investment officer Daniel Ivascyn, threatened to resign if Mr. Gross didn’t leave the company. Michael Diekmann, the former chief executive of Allianz, flew to California to meet with Mr. Gross, according to the complaint. The two worked out an agreement in which Mr. Gross would cease managing the firm’s flagship Pimco Total Return Bond fund, and would be given a portfolio of less than 10% of its assets under management at the time.

Instead, Mr. Gross alleges that Douglas Hodge, who succeeded Mr. El-Erian as Pimco’s chief executive, and President Jay Jacobstorpedoed the plan and outlined an entirely different role, saying that if he didn’t accept he would be terminated immediately.

Mr. Gross says in the suit that his relationship with Pimco reached a breaking point when managing directors, including group chief investment officer Daniel Ivascyn, threatened to resign if Mr. Gross didn’t leave the company

Click here to access the full article on The Wall Street Journal.

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