The battle between bond manager Jeffrey Gundlach and his former firm, TCW, is getting even more muddled after revelations of a government inquiry.

By Mina Kimes, writer

Jeffrey Gundlach, the center of the storm

More than a year has passed since L.A. money management firm TCW fired its star investor, Jeffrey Gundlach, but their bitter feud, chronicled in Fortune earlier this year, shows no signs of cooling off. Both sides, who are still mired in a legal battle, said last week that they are also involved in a federal investigation -- but they disagree about the reason for the probe, sparking yet another public dispute.

The TCW-Gundlach saga began last December, when the investment firm, which has about $110 billion in assets under management, fired Gundlach and announced that it was acquiring another L.A. investment firm, Metropolitan West Asset Management. The news stunned the mutual fund world: Gundlach, who is reputed in investing circles for both his mortgage bond expertise and his outsized personality, was overseeing more than half of TCW's money at the time. He was also one of the nine fund managers picked by the U.S. Treasury to run a Public Private Investment Program (PPIP) fund, a venture in which TCW would purchase toxic securities on behalf of both the government and private investors.

After Gundlach was fired, about forty of his colleagues followed him out the door. Days later, he announced that they were starting a new fund company, DoubleLine Capital. More