Citadel joins the Sergey fray

July 9, 2009

Ken Griffin’s Citadel Investment Group just filed a lawsuit against former top trader Misha Malyshev for apparently violating a non-compete agreement he signed when leaving the big Chicago hedge fund earlier this year. Malyshev, of course, is the founder of Teza Technologies, an upstart high-frequency trading hedge fund that hired away alleged Goldman Sachs code-cracker Sergey Aleynikov.

Malyshev and his partners, all former Citadel people, put out a statement on Tuesday saying they suspended Aleynikov after learning of his July 3 arrest. The former Citadel guys also say they were unware of Aleynikov’s alleged theft of Goldman’s proprietary trading computer code.

I don’t have a copy of the complaint yet, so I don’t know whether Citadel has sued anyone else at Teza. Nor do I know the exact nature of the legal claims. I’ll update when I get more.


Just got the complaint and motion for preliminary injunction filed by Citadel and the hedge fund has come out smoking, calling this a case of “industrial espionage.” The big hedge fund is suing Malyshev, his two partners and the upstart fund.

Citadel seems to suggest that in hiring Aleynikov, a man charged with stealing computer code from Goldman, it needs to put the kibosh on Misha & Co. to protect its own trading secrets and proprietary codes.

Personally, linking the hiring of Aleynikov to a violation of any non-compete agreements Misha & Co. had with Citadel seems a bit of a stretch. If Misha & Co. are in violation of the terms of the non-compete agreement, one could argue the Citadel’s trade secrets might be in jeopardy regardless of Aleynikov.

But dragging the ballroom dancing former Goldman programmer into the case clearly does make the litigation papers a lot more sexy.

As for Misha & Co., they’ve put out a statement, saying they “will vigorously fight this frivolous suit.” The statement says the “suit appears to be timed to harass Teza executives.”

Update 2.0:

Chris Gair, Teza’s lawer, told me late Thursday that Teza voluntarily turned over its computers to the FBI after learning of Sergey’s arrest on Sunday from the initial story Reuters ran about it. He says Misha & Co. contacted the FBI on Monday and told them they could come over to their offices.

The Teza crew handed over the computers and reiterated that no one knew what Aleynikove was up to. He said it appears Aleynikov uploaded some “open source” code to the Teza computers. But that open source code is widely found on the Internet. There’s no evidence of any Goldman proprietary code on any Teza computers.

In fact, I’m told that Teza had Aleynikov and all of its employees sign an agreement, which forbid anyone from uploading proprietary code from another firm onto the Teza computers. This matches with what Aleynikov told the FBI when they arrested him at Newark Liberty Airport on July 3.

Bloomberg reports that in his statement to the FBI, Aleynikov said he signed an agreement with Teza promising not to upload any proprietary code to the firm’s computers. And Aleynikov told the FBI he abided by the agreement.

It’s still early in this investigation. But it’s looking more and more like there was no widespread dissemenation or sharing of Goldman’s code.

One comment

Comments are closed.