Ed Keely collected $2.2 million when he quit his job as an institutional money manager at Janus Capital Group in May 2007. On Monday, he was in Denver District Court asking Janus for at least $5 million more.
Keely is one of 17 money managers who have fled what was once one of the world’s best-known mutual-fund companies since former Goldman Sachster Gary Black, 48, became chief executive in January 2006.
Keely’s lawsuit may explain the exodus. Keely claims Black unilaterally violated the terms of his employment contract, reducing his pay by 65 percent.
Black broke the news in an October 2006 meeting with Janus’ portfolio managers, Keely testified Monday.
Black’s pay-cut proposal ignited an uproar with Janus’ portfolio managers, who had already made some concessions.
“The first person that spoke was David Corkins,” Keely said. “David asked Gary: ‘Are you telling us that you are violating our contracts?’ And Gary said, ‘Yes.’ ”
Black and Janus chairman Steven Scheid, 55, deny violating contracts. Black took the stand Tuesday.
The complexity of the claims and counterclaims over Keely’s employment contract will present a mind-numbing task for the two-man, four-woman jury. And the trial has already taken a couple of bizarre turns.
In one twist, Corkins, who formerly managed the flagship Janus Fund, has informed Janus’ attorneys that he doesn’t believe he was properly served a subpoena. And he won’t be in to testify because he has left the country, Janus’ attorneys told the court.
For Black and Scheid, the case airs their failure to curb compensation for portfolio managers as their company continued shrinking.
Even their attorney, Edwin Aro of Hogan & Hartson, called the compensation plan they launched in 2005 “broken.”
Janus skyrocketed in prominence during the tech boom of the 1990s. In the ensuing bust, it imploded with ridiculously large positions in companies such as Enron.
As it struggled to recover, then- New York Attorney General Eliot Spitzer came after the company for scandalous market-timing trades and booted its management.
Aro said Janus’ board put immense pressure on Black to cut compensation. The plan put in place in 2005 attempted to shift incentives toward performance and away from a percentage of assets under management.
Managers started performing well under this plan and began benefiting richly. Keely was making as much as $6 million a year. But customers kept pulling their money out of Janus despite this performance because “the brand was tainted,” Aro said.
Ultimately, Black found himself between a board of directors and agitated shareholders who wanted compensation reduced, and a cadre of star money managers threatening to leave en masse.
Now that this is all being aired in open court, who wants to invest money at a firm where everyone is fighting about money?
Al Lewis: 201-938-5266 or al.lewis@dowjones.com. Read Al’s blog at .
