After Goldman, Citadel Files Its Own Espionage Suit
July 10th, 2009Via: New York Times:
Citadel Investment Group has joined the Goldman Sachs espionage potboiler with a lawsuit of its own.
Citadel, one of the world’s most successful hedge fund firms, sued a former top executive in its highly successful quantitative trading unit and two others for setting up their own firm — the same firm hired Sergey Aleynikov, the former Goldman Sachs computer programmer accused of stealing secret codes the bank uses to make lucrative, rapid-fire trades in the financial markets.
Chicago-based Citadel, founded by 40-year-old billionaire Kenneth C. Griffin, said in a lawsuit filed Thursday that Mikhail Malyshev, 40, and two other former employees had violated their non-compete clauses by starting their own firm, Teza Technologies.
“This is a case of industrial espionage,” Citadel said in a complaint filed Thursday in Illinois state court in Chicago.
Teza Technologies made headlines this week when it was identified as the firm that had hired Mr. Aleynikov, who was arrested by federal agents last Friday evening for allegedly stealing proprietary, “black box” computer programs that allowed Goldman to “engage in sophisticated high-speed and high-volume trades on various stock and commodities markets.” He has pleaded not guilty to charges of theft of trade secrets and transporting them abroad.
Mr. Malyshev, a Russian emigre with a doctorate in astrophysics from Princeton, left Citadel’s quantitative trading unit in February after the funds he helped run returned about 40 percent last year. Their performance stood out at a time when most hedge funds lost money and Citadel’s flagship portfolios tumbled 50 percent.
Citadel, which manages $11 billion and one of whose flagship hedge funds returned an average 20 percent per year between 1998 and 2006, said it zealously guards the secrecy of its own computer codes. The hedge fund firm said it spent hundreds of millions of dollars to develop strategies, software and hardware, or what is sometimes referred to as the “secret sauce” of the high frequency business, court papers show.
