Trust Company of the West CEO Marc Stern asked his legal team to monitor the emails of ex-employee and star bond fund manager Jeffrey Gundlach after growing suspicious of his intentions to start a new firm, the CEO testified on Wednesday.

Stern said that after a tense meeting on Sept. 3, 2009, during which Gundlach's top lieutenants threatened to leave the company if TCW were to fire their boss, he realized he had a bigger problem on his hands than just the possibility of Gundlach leaving the firm.

It really got me thinking about what else might be going on that I didn't get the full picture, Stern said on the witness stand about the Sept. 3 meeting.

TCW is pitted against Gundlach, the self-styled king of bonds, in a high-stakes trial with hundreds of millions of dollars on the line.

TCW fired Gundlach in December 2009 and sued him a month later, accusing him of stealing trade secrets, plotting to form a new company using TCW proprietary information, and gutting the firm of its entire mortgage-backed securities team.

Gundlach fired back with a counter-lawsuit, alleging his former employer owed him hundreds of millions of dollars in compensation and had secretly plotted to fire him while he was still chief investment officer.

Stern testified on Wednesday that the Sept. 3 meeting prompted him to begin monitoring Gundlach's emails. I learned that there were ongoing discussions with Western Asset Management Co, Stern told jurors. I learned that there was contact with real estate agents about space. I learned that there was suspicious copying of documents, of trade tickets, of client information, of contracts, and other things that made me suspicious.

In the weeks following his termination, Gundlach went on to form DoubleLine Capital, along with three of his co-defendants in the case. Roughly 45 TCW employees, largely from the mortgage-backed securities group, followed.

The case in Superior Court of California, County of Los Angeles is Trust Co of the West v. Jeffrey Gundlach et al, BC429385.

Court California Lawsuit Mortgage