Will Rogers said, “It takes a lifetime to build a good reputation, but you can lose it in a minute.”
That is precisely what happened to the man hailed as the “Bond King” by the media, William H. Gross, the co-founder and longtime public face of Pacific Investment Management Company—Pimco—and the onetime overseer of the biggest mutual bond fund in the world, with almost $300 billion in assets under management at its peak. Despite an impeccable investment record that spanned decades, Gross took a hit to his reputation when his chief investing partner and heir apparent abruptly quit at the start of 2014 and Gross was wrongly blamed for it. Within months Bill Gross, who had been fawned over by the media almost his entire career, was the subject of derision and sarcasm in the press, which published inaccurate accounts of him.
Gross resigned from Pimco a year later, and when he moved to sue his former partners in the fall of 2015, Patricia L. Glaser, of Glaser Weil Fink Howard Avchen & Shapiro, brought in Sitrick And Company to handle media and assist in setting the record straight for this investing titan.
Bill Gross was a much-followed oracle in the multi-trillion-dollar global bond markets, and after the restoration of his reputation, he is once more. A fixture on CNBC and elsewhere for years, he is known for prognostications that can move the markets. When he speaks on television in his distinctive, chalky voice, investors listen, and many of them trade on his opinionated proclamations. After the global economic collapse in late 2008 and 2009, he established a post-meltdown meme known as “the New Normal,” which predicted an era of low interest rates, low growth, and diminished possibilities that would characterize the tepid economic recovery.
Gross grew up in San Francisco, earned a psychology degree at Duke, and served in the Navy during the Vietnam War. Blessed with a golden gut and sharp mathematical and analytical skills, he started out in the highest-risk “investing” of all—gambling—playing blackjack in the casinos of Las Vegas. He parlayed two hundred dollars into ten thousand and got so good at counting cards that some casinos banned him.
He co-founded Pimco in 1971 as the investment arm of Pacific Life Insurance Company, starting out with all of twelve million dollars in client funds. Gross built Pimco as a brand characterized by patient, long-term investing with an emphasis on bonds and low risk, while achieving returns at or near the double digits typically only seen in riskier equities markets. Assets under management had risen to $70 billion by 1994, when Pacific Life spun off parts of Pimco to Gross and his team and the public markets. By 1999, Pimco took in over $9 billion in new investor money for the year, triple the sum it had taken in just two years earlier.
Allianz bought Pimco in 2000, and Bill Gross stayed on, guiding it to torrid growth. When stocks crashed that year, investors rushed to safety and bought into Bill’s beloved bond fund. Pimco took in over $12 billion in new money in 2001 and more than twice that sum in 2002. Billions more poured into Gross’s fund after the worldwide crisis of 2008–2009.
Bill Gross built a stellar, world-class investment record, outperforming his rivals consistently for years. Under his watch, the Pimco Total Return Fund beat the returns of its peers by an average of an extra 1.56 percentage points per year, every year for ten years up to 2013. That is roughly three to four billion dollars per year in extra investment profits, every year for a decade. Extraordinary.
For his impressive returns from 2000 through 2009, Morningstar, the fund-ratings bible, named him the Fixed Income Manager of the Decade in 2010, having also named him Fixed Income Manager of the Year in 1998, 2000, and 2007. As Pimco’s total assets under management neared $2 trillion, its annual revenue from management fees exceeded $12 billion a year.
In the insular and strait-laced world of fixed-income investing, Gross’s move to sue Pimco would have been news in and of itself, though probably just for a day. What was contained in that lawsuit, however, made it into something much bigger—a story with “legs.”
When Patty Glaser, his lead lawyer, called me in September 2015 to ask that we sign on for the case, which she would file in a few weeks, I was happy to oblige. Patty and I have worked together on dozens of cases over the past twenty-five years or so, and on a few occasions we have been on opposite sides. She is not just recognized by the Hollywood and business media as one of the top litigators in the country, but by legal publications as well: Chambers and Partners, which identifies and ranks the most outstanding law firms and lawyers in over 180 jurisdictions throughout the world, describes her as a “trial icon,” and Martindale-Hubbell recognizes her as an AV Preeminent Rated Lawyer—the highest category awarded, indicating that a lawyer’s peers regard him or her at the highest level of professional excellence.
No Time for Pleasantries
After getting Patty’s call on a Saturday morning, one of the first things I did was call the firm partner I wanted to join me on this case: Seth Lubove. A former reporter and editor with the Wall Street Journal, Forbes magazine, and Bloomberg News with thirty years of journalism experience, Seth knows the financial markets and which players to watch, and he loves a story that goes against the grain. He helped put himself through college in the late 1970s by serving in the U.S. Marine Corps Reserves, as a grunt behind an M60 machine gun, eschewing officer training because he wanted to know what the real thing was like. His nickname in the firm—given to him by me—is “Sarge.” Seth still emits traces of that military bearing as he works, all day long and often into the night, at his stand-up desk.
It was a Saturday morning in September, Seth was out with his wife, and they were just embarking on a bike ride down to Venice Beach, his cell phone resting in the basket of her bicycle. “Your phone’s ringing,” she told him, and he stopped dead in the street and scooped it up to take my call. Embarrassing as this is to admit, I wasted little time with pleasantries, telling him, “We’re representing Bill Gross, who’s getting ready to sue Pimco.”
Seth, who covered fixed-income investing among other topics in sixteen years at Forbes and seven and a half years at Bloomberg, knew instantly just how huge were the implications of this lawsuit. It meant the Bill Gross story was only beginning, that he was not going away quietly—he was going to fight. As Seth resumed his bike ride down to Venice Beach, he could barely feel the pedals, his mind racing with the possibilities.
In the financial world, your reputation is everything—your reputation for high integrity, truthfulness, smarts, and market savvy. In this richest of business realms, even an obscure, arcane dispute can put billions of dollars at risk. Sometimes the stakes can run even higher than that: they can be a matter of freedom, and even life or death. In 2015, a client came to my firm asking for our help in shining a light on and, he hoped, rectifying a terrible travesty that was the result of a lawsuit against one of the wealthiest and most powerful businessmen in South America. This client’s associates were part of a small investor group that was asking a court to recognize the legitimacy of a $75 million private share purchase from several years earlier that now was valued at more than $2 billion. A decision in the group’s favor could produce a huge windfall and even bring a change of control at one of the largest conglomerates in South America.
But the bigger problem was that the investor group’s head, an eighty-year-old man who was battling cancer, had been languishing in prison for almost a year, jailed without trial for allegedly violating a court order in connection with the lawsuit. The client believed court officials had taken bribes to keep the investor head imprisoned as a means of intimidation. We felt that making his plight more broadly known might win his release.
So Tom Becker, head of our New York office and a former reporter for Dow Jones and Bloomberg, began reaching out to contacts in the international media and to a writer at the Financial Times. Becker gave the FT an inside look at the case, at the same time suggesting to other journalists that they call law enforcement officials, elected representatives, and even the defendants in the lawsuit. They asked questions about the prison sentence, what kind of care the man was receiving, and when and whether he ever would get a trial.
One month later, the Financial Times published a story on the dispute, including the fact that the investor group’s head was in prison without a trial. A month later the man was allowed to go home and receive the medical care he needed while awaiting trial. His associates believed that the release saved his life. His legal fight against the South American conglomerate continues.
In the case of Bill Gross and Pimco, no one was behind bars, but the reputation he had earned from a lifetime of outstanding work was at risk. In his four decades at Pimco, Bill Gross came to personify the brand, but along the way he made room for a second star at the firm: Mohamed El-Erian. Having joined the firm in 1999, El-Erian left to run the multibillion-dollar Harvard University endowment for a year, returning in 2007 to serve as co-chief investment officer with Gross with the expectation of eventually succeeding him. Theirs was an uneasy alliance, which became further strained after the financial meltdown. As one journalist later put it, Gross is a “former blackjack player and a trader at heart. El-Erian is an economist with a more methodical approach.” Bill prized bonds, while Mohamed focused on hedge fund-style investments with higher risks, potentially higher returns, and higher fees for Pimco. This divergence in their views would cause a rift in their relationship.
Bill Gross’s bond fund remained the flagship of Pimco, but in 2011, the fund had an off year, underperforming the benchmark Barclays U.S. Aggregate Bond Index. The Total Return Fund finished 2013 down 1.9 percent, the first losing year for Gross since 1999, although it still beat the benchmark Barclays index, which fell 2.02 percent. The fund’s investors pulled out $41 billion in the year.
Although Gross, in what would be his final three years at Pimco, racked up returns almost double those of the benchmark bond-market index, he came under fire in the press, a stinging first. Each criticism, once stated, seemed to spark another, and the critics grew bolder as the months wore on.
Then in January 2014 came a shocker—Mohamed El-Erian’s sudden, surprise resignation, followed by Pimco’s explanation that he was leaving to spend more time with his family and write a book. The press pretty much played it straight, reprinting El-Erian’s provided statement: “I have been extremely honored and fortunate to work alongside Bill Gross, who is one of the very best investors in the world.” Bill Gross put out a tweet on Twitter that drew widespread uptake: “I’m ready to go for another 40 years!”
Pinning the Blame
Then, seemingly out of nowhere came a story in the Financial Times that broke insider details of El-Erian’s departure, laying the blame at Gross’s feet. The other shoe dropped a month later, on page one of the Wall Street Journal, stomping on the pristine reputation of Bill Gross. Headline: “Inside the Showdown Atop Pimco, the World’s Biggest Bond Firm.” Deck: “After clashing with Pimco co-founder Bill Gross, CEO Mohamed El-Erian decided to leave the fund giant.”
The story largely pinned the blame for El-Erian’s abrupt departure on Gross, citing infighting between him and Mohamed and a litany of uncomplimentary characterizations. In Journal parlance, it is known as a “reconstruction,” because it pieces together various accounts in the aftermath of a huge, dramatic event to tell it from the inside out. The story opened with a scene from a few months earlier, in which Bill Gross and Mohamed El-Erian “squared off in front of more than a dozen colleagues amid disagreements about Mr. Gross’s conduct. . . .” It then quoted Gross as telling El-Erian, “I have a 41-year track record of investing excellence. What do you have?”
“I’m tired of cleaning up your s—,” El-Erian responded, citing “conduct by Mr. Gross that he felt was hurting Pimco. . . .”
The Journal reported that Gross’s decisions had “confused” employees, that he “doesn’t like employees speaking with him or making eye contact, especially in the morning,” and that he “prefers silence and at times reprimands those who break it, even if they’re discussing investments. . . .” He was said to chide employees for failing to number the pages of their presentations and to rankle at any dissent once he had set an investment strategy. The paper also quoted one former trader, on the record and by name, as saying Gross “grew tired and wary of those closest to him” once they rose in power, turning each veteran’s former “halo” into “a crown of thorns where interactions with Bill would turn adversarial, short, and unpleasant.”
The story continued, “Late last year, in front of a number of traders, Mr. Gross said, ‘if only Mohamed would let me, I could run all the $2 trillion myself. . . . I’m Secretariat. Why would you bet on anyone other than Secretariat?’” Gross’s response in the Journal reconstruction was primarily a prepared statement citing forty years of “superior results for our clients” and saying, “I ask of others only what I demand of myself: hard work, dedication and intense focus on putting our clients first.”
That Journal story was “the crusher,” as Bill Gross himself later put it, and the fallout was swift and widespread. A few dozen other publications and websites ran fast “folos” picking up the Journal story. The same day the story ran, the co-author of the Journal’s story, Gregory Zuckerman, went on CNBC to talk about it, and Bill himself, frustrated, called in to CNBC a while later to complain on the air about the Journal takedown.
CNBC anchor Brian Sullivan told viewers, “Bill, thank you very much for joining us. I’m assuming you’re calling in to react to what you heard from Greg Zuckerman. Or maybe yell at us.” Bill returned serve nicely: “No, I am not, Brian. I respect Greg. We’ve been good friends for ten or fifteen years, but, like the old radio announcer Paul Harvey said, it’s time for the rest of the story. I think he only had half of it.” He went on to say the Journal reporter “gave us a chance last night to go over some of the facts, and we disputed some of them,” and labels the story “far overblown.”
Gross told CNBC he isn’t a “morning person,” and he needs five cups of coffee to wake up, but he says he isn’t all that strict—he even instituted an authorized “conga line” at eight in the morning on some days to loosen up the atmosphere. Gross also revealed that El-Erian had resigned after helping set a plan to share power among six newly named sector CIOs. “Mohamed left because he told us that he wasn’t the man to carry out his own plan,” Gross said on air.
Once the Journal story had run, the anti-Gross meme spread. A few weeks later, a member of the board of trustees of Gross’s Pimco Total Return fund was quoted in the Los Angeles Times as being critical of Bill for his compensation and his management style. This got picked up by the U.S. financial press and spread to London, in the Telegraph and the Independent among other publications.
The turmoil prompted the Morningstar fund-tracking service to raise concerns, saying Pimco’s “public reputation” had been shaken by the El-Erian exit, resulting in a downgrade of the firm’s “stewardship” grade from a B to a C. Morningstar cited reports that Gross had “a severe and reputed retaliatory temperament” that makes it difficult for dissenters to speak up. These concerns were then echoed in the New York Times and elsewhere, further damaging Gross’s investing reputation.
Then came still more piling on. Suddenly the man who had been revered for his intelligence and wisdom was being characterized—baselessly—as erratic, imperious, and a liability. “When Superstar Executives Become a Company Liability,” a USNews.com headline blared on April 1, 2014. New York Times, April 3: “Pimco’s Gross, Facing Skeptical Investors, Discusses His Dead Cat.” Bloomberg, April 10: “Gross asks: Am I really such a jerk?”
A month later, Pimco parent Allianz declared publicly that it “stands by its chief investment officer despite fund struggles” (Bloomberg News). “We want Bill Gross to work as CIO for as long as he is willing and able,” an Allianz exec told Bloomberg.
Then Again, Maybe Not
And then Bill Gross stunned the investing world by quitting Pimco outright, hand-scrawling his resignation letter with felt-tip pen and marking the time as 6:29 a.m., PST, on September 26, 2014. Gross was leaving his gargantuan Pimco fund to run a fledgling $70 million fund at the much smaller Janus Capital. Shares of Allianz fell 5 percent on the news of the surprise resignation, while the stock of Janus jumped 20 percent in pre-market trading (and 40 percent in the ensuing weeks). The news itself was enough to rock the bond markets, but the story behind it, which his lawsuit would reveal, was even more shocking.
An avalanche of media coverage depicted Bill Gross as having resigned under threat of imminent firing, scorned for his blunt style and eccentricities and leaving in disgrace and defeat. The reports, flatly untrue, were fed by leaks from Gross’s enemies inside his own firm, according to his lawsuit, and enabled by a lack of a detailed, emphatic defense delivered upfront before the story got out of his grasp.
“The Long and Sometimes Wacky Reign of the Bond King,” as the New York Times put it. A day later, the Times did a “folo” (“Fixed-Income Manager Made Investing Engaging with Farcical Antics”) that read in part:
But for as long as he ruled the bond markets, the king [Gross] was also the court jester. His personality quirks were famous on Wall Street. Only in recent years, as Pimco’s performance slipped and investors began to bolt, did the wackiness start to seem offensive.
“When you’re a Master of the Universe for a while, your eccentricities are tolerated,” said Russel Kinnel, the director of manager research at Morningstar, the mutual fund research company that sponsored the June conference. “Until you cease to look like a Master of the Universe anymore.”
A similar point followed from the veteran financial columnist Allan Sloan in a Washington Post blog under the headline “When Bill Gross’s Pimco funds lost market share, his oddities ceased to be charming”:
What is the difference between being a charming and colorful eccentric and being a tiresome crank? When it comes to Bill Gross, the former bond king, I think that one of the key answers is “market share.” Or, more specifically, losing market share. . . .
[Gross] had a messy public split early this year with his second-in-command and heir apparent, Mohamed El-Erian, who left in January. That hurt Gross badly, especially because El-Erian and his allies did a far better job of peddling their version of events than Gross did his.
On November 5 came another blow: “Glory to the New Bond King,” on Forbes.com, a glowing profile of LA-based bond manager Jeffrey Gundlach of DoubleLine, rhapsodizing about his new billionaire status, his $16 million Tuscan-style mansion, his collection of paintings by Warhol, de Kooning, et al., and his likely gains in the turmoil of Bill Gross’s leaving Pimco. It includes this anecdote:
Just about a month earlier Bill Gross of Pacific Investment Management Co., the reigning master of the bond universe for two decades, requested an audience with Gundlach. In a scene that can only be described as Shakespearean, the incumbent bond king drove an hour up the 405 Freeway in the middle of the afternoon to Gundlach’s new castle . . . and he was asking his nemesis for a job. . . .
Bill Gross provided a terse no-comment for the piece. With help from his lawyers and us, Gross would blow up this extended onesided narrative by getting the facts out in his lawsuit against the firm he had co-founded.
The lawsuit that Patty Glaser would file against Pimco and its parent, the U.S. unit of German insurance giant Allianz, portrayed an elaborate plot that the media hadn’t mentioned before. Her complaint would lay out a compelling case that the controversy had masked the truth of what really was going on at Pimco: a fight over higher fees that some in the firm wanted to impose but which Bill Gross opposed as detrimental to Pimco investors and a mutiny by a “cabal” of young Turks who were bent on ousting Bill Gross and divvying up his compensation of $200 million a year among themselves.
Seth Lubove and I had to move swiftly. We reached out to Andrew Ross Sorkin of the New York Times and CNBC, as well as to a veteran beat reporter at Bloomberg, Mary Childs, giving them a heads-up, which would allow them to post their stories minutes after the lawsuit was time-stamped and filed at the court.
To ensure the right points got hammered, Seth and I wrote up a separate backgrounder laying out the same narrative that was mapped out in Bill Gross’s lawsuit, though with a little less legalese. Seth, meanwhile, anticipating the inquiries that would pour in moments later, lined up a dozen waiting emails in his draft queue, ready for sending to still other beat reporters, with a copy of the lawsuit attached to each note. When the right moment came, he would fire off each one individually, one button-push at a time.
When possible, this is the kind of strategy we prefer: the surprise attack. It allows us to float our full story while the other side reviews what is in the complaint and responds to the media within proscribed deadlines. (When the shoe is on the other foot, whenever possible, we push for more than just “We can’t comment” or “The litigation has no merit.” It depends on the facts, the lawyers, and the case.)
“A Lust for Power”
In all the sniping and misreporting that had followed Bill Gross’s surprise departure from Pimco, he hadn’t yet put out his complete story to the public. The legal complaint put together by Patty Glaser and her team proved to be an ideal platform for telling it. It was brilliantly written. Filed in Orange County Superior Court in southern California on October 8, 2015, precisely at 8:01 a.m. local time, it opened with this compelling and widely quoted paragraph:
1. 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 Pacific Investment Management Company LLC (“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. Their improper, dishonest, and unethical behavior must now be exposed.
The complaint went on to say that “Mr. Gross’s ongoing success at PIMCO proved to be his undoing,” citing his 20 percent share of the annual bonus pool and adding, “By forcing him out of PIMCO, the younger executives would split Mr. Gross’s share of the bonus pool amongst themselves.” It added, he “championed reasonable fees” for Pimco investors, while the younger executives wanted “to transform PIMCO into a high-risk, high-fee asset-management company that invested in riskier equities and leveraged real estate investments, as opposed to the stable bonds that built the firm’s reputation.”
The complaint also told of how Gross championed bringing in Mohamed El-Erian as his eventual successor, but “[c]racks soon began to appear in this alliance.” Gross preferred his low-risk, long-term style of investing, while El-Erian wanted to steer Pimco into riskier assets such as stocks, commodities, and leveraged investments in mortgages and real estate. Gross likened his own approach to a “bonds and burgers” restaurant that serves only one thing, while El-Erian’s plan was “similar to the extensive and varied menu at a Cheesecake Factory restaurant,” the complaint explains.
One of the key differences between the two restaurants: how much investors must pay in fees. Fees for Gross’s bond business typically ran just one-half of 1 percent of the money in an investor’s account, per year (0.50 percent, or fifty “basis points”). Fees for the more exotic investments favored by El-Erian and the younger ranks at Pimco ran 2 percent (four times as high as what Gross charged), plus a 20 percent cut of investment gains. “Two and 20,” in hedge fund slang.
The complaint also revealed that El-Erian chose to quit after Bill Gross offered to step aside as Pimco’s co-chief investment officer and let El-Erian run the whole show solo, Gross confining himself to his Total Return bond fund. Pimco hoped to withhold news of El-Erian’s resignation but told its managing directors about the move in a meeting on January 20, 2014, admonishing them that “no leak of this information to the media could be allowed,” Gross’s complaint relates.
That ban notwithstanding, Andrew Balls, a Pimco managing director and a former reporter for the Financial Times, tipped a reporter at his old paper in London, which broke the resignation story two days later, laying the fault “at Mr. Gross’s feet” for his management quirks, the complaint asserts. El-Erian, upset by Gross’s offer to step back, had quit in “anger and apprehension over the idea that he would have to bear sole responsibility (and blame) for the high-fee investments he had promoted at PIMCO.”
Stories subsequent to the Financial Times piece “heaped praise on El-Erian and cast criticism on Mr. Gross.” They “were fueled by additional leaks and unattributed commentary from both Balls and El-Erian himself,” Gross’s complaint said. It described how Pimco tracked calls from the managing director’s backup phone to a reporter at the Financial Times and another at the Wall Street Journal, in the latter case before the Journal published its devastating reconstruction of the El-Erian departure, painting Bill Gross as the heavy. Balls himself first denied any wrongdoing, then admitted to having briefed the reporters and reporting back to El-Erian without telling anyone at Pimco or seeking permission to do so, according to the complaint.
Bill Gross pushed Pimco to fire the leaker for his misdeeds, but the Pimco leadership refused, the complaint recounts, and “secretly” began to “align against Mr. Gross.” This emboldened another person at the firm, an aggressive trader in higher-risk assets that generate higher fees, who then “hatched a plan to oust Mr. Gross from PIMCO.” The trader lined up several “co-conspirators” inside the firm, and they threatened to quit unless Pimco forced Gross out of the company.
Bill Gross, alarmed for the future of the firm he co-founded, began negotiating a graceful fade-out, agreeing to resign his post as chief investment officer of Pimco while continuing to run the fixed-income business. Gross also agreed to give up his title as chairman of the investment committee and his seat on the executive committee and the compensation committee. And he agreed to cut his annual bonus in half or more “to placate the PIMCO managing directors who were seeking to ensure that they received a larger share of the company’s profits for themselves,” his complaint disclosed. Gross even agreed to give up his oversight of his beloved Total Return Bond Fund to run, instead, a portfolio less than 10 percent as large. Then the lawsuit revealed:
63. And then he agreed to what he considered further humiliation: Mr. Gross would be barred from the PIMCO offices, and left to handle the remaining portfolio from another office separate and away from PIMCO’s.
But Pimco and its parent, Allianz, would renege on even this humbling deal, in essence telling Bill Gross he could stay on at the firm he had run for forty years until December 2014—or be terminated immediately. A Hobson’s choice if ever there was one. So he quit. Then the firm refused to pay him the $80 million bonus he had been promised for the third quarter, because he had resigned on September 25, five days before the quarter ended; never mind the even bigger sum due in the fourth quarter. Also according to the complaint, the firm violated the de facto guarantee of five years of further employment that was a consequence of his having been reelected as CIO in 2014, and the firm had denied him the opportunity to let all of his stock options and equity grants fully vest.
Seeking Damages of $200 Million
“As a direct and proximate result of Defendants’ breach, Plaintiff [Gross] has been damaged in an amount to be determined at trial, but in no event less than $200 million,” the complaint stated.
You might be thinking that this is a petty and vindictive spat between multimillionaires and a billionaire, but Bill Gross took the unusual step of publicly pledging that any proceeds his lawsuit exacted from Pimco would be donated to charity. Among his planned recipients: the Pimco Foundation, which he founded and subsidized in its early years. This promise shows you how much value Bill Gross places on setting the record straight and defending his reputation, not padding his bank account. The point was hammered hard by the CNBC anchor Andrew Ross Sorkin when he went on the air moments after the Bill Gross lawsuit was filed:
We have an extraordinary lawsuit that’s just been filed by Bill Gross, of course, the founder of Pimco who was ousted from his own company. He is now suing Pimco in a remarkable lawsuit that was just filed moments ago in California. Gross is seeking what he says is “no less than $200 million in damages,” which he says he’s going to donate to charity.
Sorkin, a print journalist who has an obvious appreciation for the written word, went on to say, “It is an unbelievable story, it almost reads like a murder mystery,” and then CNBC ran a “full-screen” featuring Bill Gross’s mugshot, a “Breaking News” logo and headline (“GROSS SUES PIMCO”), and the full text of the lawsuit’s opening salvo, as Sorkin recited the entire bite: “Driven by a lust for power and greed. . . .”
Sorkin mentioned the El-Erian feud, a plot to deceive investors, “calls and leaks to the media,” the search of Andrew Balls’ backup cell phone to find his calls to the Journal, and the revelation that Pimco had a $1.3 billion bonus pool in 2013 and Gross was set to get a 20 percent cut. Sorkin covered a lot of ground in just three minutes and fifty-six seconds.
The story went up on CNBC.com, as well, saying the Gross complaint provided “his own colorful version of an ugly feud that led to his departure last year.” It added:
Mr. Gross is seeking “in no event less than $200 million” from Pimco for breach of covenant of good faith and fair dealing, among other causes of action. But to underscore the degree to which the suit is motivated by Mr. Gross’s desire to correct the public record, he has promised to donate any money he recovers to charity, his lawyer, Patricia L. Glaser, said.
Pimco’s presence in the story was limited to this: “Pimco did not immediately respond to calls for comment.” The story was posted on CNBC.com at 11:04 a.m. Eastern Time (just a few minutes after the lawsuit was filed in Orange County, California, where it was eight in the morning). It ran on the New York Times website, as well, adding to the impact. It was posted at about the same time on Bloomberg, which quoted a Pimco spokesman’s boilerplate response: “This lawsuit has no merit and our legal team will be responding in court in due course.” But that was it, nothing more. The charity angle came near the bottom of the piece. Both Bloomberg and CNBC tagged their stories with links encouraging readers to forward the coverage online through Twitter, Facebook, Reddit, LinkedIn, and email, multiplying the audience for Bill Gross’s counter-story.
As my partner Seth Lubove and I had anticipated, all hell broke loose after that, and he proceeded to send each of the dozen emails he had prepared to get the lawsuit’s message out to the next wave of beat reporters. There was an immediate shift in the tone of the media coverage as reporters focused on the plot by younger managing directors to oust their patriarch and the feud over fees.
A few days after the story of the lawsuit broke, a Wall Street Journal columnist called the first paragraph of Gross’s complaint “the most quoted opening since ‘call me Ishmael.’” He also stated that Gross’s lawsuit was a bid to see “how much further he can fill his amply filled pockets at his former employer’s expense.”
This struck Seth and me as an outright inaccuracy, given that Bill Gross was pledging any lawsuit proceeds to charity. So Lubove requested a correction but was turned down. We got something better, however: the paper agreed to publish a letter to the editor from Gross’s attorney. A correction would have been buried in a small paragraph at the bottom of the page. The letter to the editor, three days later, ran as the lead letter across two columns at the top of the op-ed pages. It was signed by Gross’s lead lawyer, Patty Glaser. Headline: “Gross’s Suit Has Nothing to Do with Greed.”
She noted that the columnist had ignored Gross’s pledge to donate any winnings to charities, including Pimco’s, “as your own newspaper and scores of other publications have reported.” She concluded, “Had [the columnist] included the fact that Mr. Gross has committed to donating any recovery from the lawsuit to charity, I believe it would have undermined the premise of his column and his attempt to portray my client as greedy.”
After the flurry of the first few days, the media spotlight eventually shifted back to where it had been for Bill Gross before the publicity surrounding his departure: his investing views, his market outlook, his global economic vision. From then on, we focused on keeping the circle of scribes following this story up to date, making sure they had Bill Gross’s responses to Pimco’s responses, if any, and informing them when a key hearing was coming up in court or a new wrinkle had developed.
The New York Times: “. . . Besting Pimco Is the Best Revenge”
A month after the lawsuit’s filing, the New York Times ran a story under the headline “Lawsuit against Pimco sheds light on murky investor fees.” It noted, “Mr. Gross’s accusation zeros in on perhaps the murkiest area of the $15 trillion mutual fund industry: How fund companies account for and disclose the billions of dollars in fees that they charge investors each year for managing their money.”
Pimco did not file its full-fledged response to the lawsuit for another six months, by which time much of the frenzy had faded. In the meantime, the Gross lawsuit had prompted follow-up stories such as one published in the New York Times on April 27, 2016. Headline: “For onetime bond king, besting Pimco is the best revenge.” The story notes:
Although he was fired nearly two years ago and has moved on to a rival, Janus Capital Group, Pimco remains very, very close—both physically and, it would appear, psychologically.
“We were a family: Everything I did was for them,” Mr. Gross said in his whispery, high-pitched voice. “That is the most disappointing thing—it just didn’t make business sense.”
The story went on to report that in the six months Gross had been running the Janus Global Unconstrained Fund—which started at $70 million and now was up to $1.3 billion, half of it Gross’s personal money—it was “handily beating its counterpart at Pimco,” up 1.8 percent versus a 1.64 percent decline at Pimco. Apply that gap in performance to the $300 billion that Gross used to run at Pimco, and it would be the difference between reaping an extra $5.4 billion in investment profits in a year and being down $4.9 billion.
The Times quoted Gross declaring, “I am fixated on proving that they were wrong. . . . It’s like—no, you shouldn’t have done that and the numbers will prove it.” Pimco, the story noted, had seen investors pull out a staggering $376 billion in the eighteen months since Bill Gross had been forced out—another number vindicating Gross’s complaint.
A month later, Bill Gross raised $4.5 million selling stamps from his personal collection, one of the richest in the world, and donated the money to charity—including the Pimco Foundation. Seth Lubove did the research on this, sensing Gross’s former charges at Pimco might try to find a way to turn down the donation. He studied the foundation’s bylaws and learned that Pimco would have no choice but to accept the contribution from the co-founder it had fired, who now was suing the firm in California court. And so it unfolded in the media as planned.
By late 2016, Bill Gross, even as he buttressed his investing legacy, was continuing his legal jousting with his old firm, as Patty Glaser and her partners won skirmishes in court to compel Pimco to produce long-delayed documents and knock down Pimco’s efforts to force Gross into providing materials that weren’t pertinent to the case.
On March 27, 2017, CNBC reported,
Bill Gross, who was fired from Pimco four decades after he co-founded the investment firm, has settled his lawsuit against the company for just over $81 million, sources told CNBC on Monday. He also gets a “Founders Room” named after him at the company’s Newport Beach headquarters, along with the launch of a “Bill Gross Award,” according to a Pimco press release. A lawyer representing the Pimco co-founder filed a request in California state court to dismiss the fund manager’s suit over his 2014 departure from the company. All proceeds from the settlement will go to charity—to the Sue and Bill Gross foundation.
Equally important to Bill, today, and going forward, Bill Gross’s reputation is back on top, right where it deserves to be.