The breach-of-contract lawsuit filed by Bill Gross against his former employer, Pacific Investment Management Co. (Pimco), reads like a melodrama cooked up by a Hollywood screenwriter.
The billionaire bond investor filed suit Thursday in Orange County, California, asking for more than $200 million in damages. He alleges executives at the investment firm plotted to remove him in an internal power struggle that ultimately prompted him to leave the company in September 2014.
The suit tells the story of the 71-year-old's rise to the upper echelons of the financial world after a detour as a professional blackjack player. Gross, who helped start Pimco in 1971, was pushed aside when his once-legendary returns as bond fund manager began to falter. There is even a hint of betrayal from once-trusted colleague Muhammad El-Erian, whom Gross favored to be his successor.
El-Erian, the son of an Egyptian diplomat, was Pimco's head of emerging markets trading from 1999 to 2006 before being lured away by Harvard University to manage its $30 billion endowment. He eventually clashed with Harvard President Larry Summers and decided to return to the investment firm, which he did in 2007 as co-chief executive officer and co-chief investment officer. Gross also held the later title.
According to Gross, he was initially pleased with the arrangement and "worked in alignment" with El-Erian, 57. But tension arose over El-Erian wanting to make Pimco a "general purpose investment management firm" that would offer stocks, commodities and real estate. Gross wanted to stick with bonds.
"This was not a mere philosophical difference between the two men," the suit states. "Mr. Gross was concerned that Pimco's expansion into new investment fields posed a particular liability to the company should a significant event, such as the collapse of Lehman Brothers, occur."
Gross won fame in the financial world by "actively" managing his fund, called the Pimco Total Return fund, meaning that he would buy and sell bonds to maximize returns instead of holding securities until they matured.
The strategy worked for decades. When Pimco was founded, it had $12 million in assets; by 2013, the Total Return Fund was the world's largest mutual fund, with $300 billion in assets. As Bloomberg News noted last year, Gross's flagship fund beat the performance of 96 percent of his peers over 15 years, earning him "a reputation unparalleled among mutual fund managers."
Despite the fund's growth, Gross, dubbed the Bond King by the financial press, miscalculated the impact of the Federal Reserve's decision to unwind bond purchases as part of an effort to stimulate economic growth. In 2013 his fund posted its biggest losses in two decades as investors fled. Gross's relationship with his colleagues also deteriorated. Some threatened to quit if he remained.
"Mr. Gross's ongoing success at Pimco proved to be his undoing," the complaint claims. "In the minds of certain younger executives at Pimco, Mr. Gross's ongoing presence at the company checked their own financial and career ambitions. ... By forcing him out of Pimco, the younger executives would split Mr. Gross's share of the bonus pool amongst themselves."
In his 19-page suit, Gross demands damages of at least $200 million, including an $80 million bonus for the third quarter of 2014 that he didn't collect because he left days before the time period came to an end. Gross also paints himself as champion of average investors, some of whom who expressed concerned about Pimco's fees.
Gross suggested that Pimco "has been deliberately obfuscating the allocation of some fees in order to make it easier for the firm to raise them," Morningstar senior research manager Eric Jacobson told CBS MoneyWatch.
Gross reportedly has promised to donate his winnings from the case to charity. Pimco says Gross's case is without merit.
Gross's current employer, Janus Capital, declined to comment, and his personal spokesman didn't respond to a request for comment. El-Erian didn't respond to an email seeking comment.