Opus Trading Fund Accuses Former Trader That Joined Competitor of Breach of Contract and Misappropriation of Proprietary Information

In a complaint filed on March 28, 2011 in New York County Supreme Court, trading and investment firm Opus Trading Fund, LLC (plaintiff) accused a former Opus trader, David Kleinman (defendant), of violating the confidentiality and non-competition clauses of his employment agreement by accepting employment with a competitor that follows a similar trading strategy.  For more on the legal and practical issues relating to confidentiality and non-competition clauses in employment agreements for hedge fund investment talent, see “Key Legal Considerations in Connection with the Movement of Talent from Proprietary Trading Desks to Start-Up or Existing Hedge Fund Managers: The Talent Perspective (Part One of Three),” Vol. 3, No. 49 (Dec. 17, 2010).  In addition to illustrating the types of legal disputes that can arise when trading talent moves from one firm to another, this matter also illustrates the importance of protecting sensitive information with technology.  This article summarizes the factual and legal allegations in the complaint, with emphasis on the security measures Opus implemented to protect its digital property.  For discussions of other disputed talent moves and hedge fund employment disputes, see, e.g., “Broadly Defined Terms in a Term Sheet Covering Employment of a General Counsel May Render Hedge Fund Manager Principal Personally Liable for Unpaid Compensation,” Hedge Fund Law Report, Vol. 4, No. 12 (Apr. 11, 2011); “Dispute between Structured Portfolio Management and Jeffrey Kong Offers a Rare Glimpse into the Compensation Arrangements between a Top-Performing Hedge Fund Management Company and a Star Portfolio Manager,” Hedge Fund Law Report, Vol. 4, No. 8 (Mar. 4, 2011); “Hedge Fund Research and Advisory Firm Aksia LLC Sues Two Former Employees for Misappropriation and Destruction of Confidential Business Information,” Hedge Fund Law Report, Vol. 3, No. 4 (Jan. 27, 2010); “New York Trial Court Permits Action for Misappropriation of Hedge Fund Proprietary Software and Breach of Partnership Agreement To Proceed,” Hedge Fund Law Report, Vol. 2, No. 6 (Feb. 12, 2009); “Protecting Hedge Funds’ Trade Secrets: The Federal Government’s Enforcement of Criminal Laws Protecting Proprietary Trading Strategies,” Hedge Fund Law Report, Vol. 3, No. 48 (Dec. 10, 2010).

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