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Protecting Hedge Funds’ Trade Secrets: The Federal Government’s Enforcement of Criminal Laws Protecting Proprietary Trading Strategies

On December 10, 2010, the trial of Sergey Aleynikov, a former Goldman, Sachs & Co. employee accused of stealing the computer code underlying Goldman’s high-frequency trading system, ended in a guilty verdict.  The Aleynikov trial follows close on the heels of the trial of Samarth Agrawal, a former employee of Société Générale who was convicted last month of theft of trade secrets, also in connection with misappropriation of high frequency trading code.  These cases reflect a new emphasis by the federal government on high-technology and intellectual property-related crimes, and should be of great interest to hedge funds, many of which rely upon trade secrets or proprietary trading strategies to some degree.  In a guest article, Sean O’Brien and Sara Welch, Partner and Associate, respectively, at Arkin Kaplan Rice LLP, focus upon the key legal issues presented and resolved in the Aleynikov prosecution, and the implications of those issues for hedge fund managers.

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