NEW YORK — A year after Bill Gross was ousted from the firm he helped build, he is looking for vindication.
In a lawsuit filed Thursday, the cofounder of Pacific Investment Management Co. accused the bond giant and several of its executives of pushing him out in order to divvy up his 20 percent share of Pimco’s profit pool. Gross seeks “hundreds of millions of dollars,” money he plans to give to charity should he win, said his lawyer, Patricia Glaser.
“Driven by a lust for power, greed, and a desire to improve their own financial position and reputation at the expense of investors and decency, a cabal of Pimco managing directors plotted to drive founder Bill Gross out of Pimco in order to take, without compensation, Gross’s percentage ownership in the profitability of Pimco,” according to a 20-page complaint filed in California state court.
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“This lawsuit has no merit and our legal team will be responding in court in due course,” Michael Reid, a spokesman for Pimco, wrote in an e-mail. A spokeswoman for Allianz SE, Pimco’s parent, also said the suit was without merit.
For Gross, who’s worth about $2 billion, according to the Bloomberg Billionaires index, the fight isn’t about money. It’s about his reputation and how history will portray the end of one of the greatest careers in money management. Gross, whose behavior at Pimco had been depicted in media reports as erratic, said in May he’d been a wimp for not standing up for himself. Now, he wants to expose “improper, dishonest, and unethical behavior.”’
Gross departed last year, a move that rattled bond markets and prompted record redemptions at what once was the world’s largest mutual fund. The suit portrays Gross, 71, as an advocate for lower fees and traditional, lower-risk bond investments who was pushed out by executives seeking to expand into riskier assets and higher-fee products.
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Gross joined Janus Capital Group in Denver to run a small bond fund. Shortly afterward, Pimco named Dan Ivascyn, a money manager who ran the top-performing Pimco Income Fund, to succeed him as chief investment officer.
Mohamed El-Erian, Gross’s former co-chief investment officer and heir apparent for many years, had announced his resignation at the start of 2014, prompting media reports of clashes between Gross and Pimco’s management. Erian is now chief economic adviser for Allianz and a Bloomberg View columnist.
According to the lawsuit, Erian had sought to expand Pimco’s business from fixed income into other asset classes, such as equities, commodities, real estate, and hedge fund-like products, a push that Gross opposed. When Gross offered to focus solely on the fixed-income business, Erian was “angry and apprehensive at the idea that he would have to bear sole responsibility (and blame) for the high-risk, high-fee investments he had expanded Pimco into,” and he abruptly announced his resignation, the complaint says.
The lawsuit says that another Pimco money manager, Andrew Balls, subsequently made several calls to newspapers on behalf of Erian, leaking information in an effort to harm Gross. Pimco’s management didn’t accept an offer by Balls to resign and rejected a request by Gross that Erian be denied a portion of his $50 million bonus for the first quarter, according to the lawsuit.
The complaint claims the turmoil surrounding Erian’s departure emboldened other managers, including Ivascyn, to take advantage and seek financial gain. The higher-fee investment vehicles Ivascyn oversaw had generated “hundreds of millions of dollars” each year for Pimco, yet the bonus pool didn’t allocate profits to specific business units, instead pooling them in one bucket, the complaint states. And 20 percent of that pool was allocated to Gross, the document said.
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“Ivascyn believed that Pimco was paying Mr. Gross tens of millions of dollars that should have instead gone to Ivascyn,” the complaint said. So he “hatched a plan to oust Mr. Gross from Pimco.”
The lawsuit says Ivascyn found an ally in Brent Harris, and the two went on to recruit other executives who stood to gain from upheaval.
Erian, Ivascyn, Balls, and Harris didn’t respond to requests for comment. The spokeswoman for Allianz said the company learned about the complaint via media reports, and that Gross terminated his position at Pimco and immediately moved to a competitor.
Because Gross left a few days before the end of the third quarter, he received only a fraction of his bonus for 2014, which was “on track” to reach $250 million, according to the complaint.