Hedge fund management firms, courts and commentators have devoted significant attention to the steps that hedge fund managers can take to protect the confidential information and trade secrets that belong to the firm, including how to protect information that is at risk when employees depart. In that context, the focus is largely upon potential claims that a hedge fund manager might possess against a departing employee – or the potential grounds that governmental authorities might have to pursue the former employee in such a situation. See “Recent Developments Affecting the Protection of Trade Secrets by Hedge Fund Managers
,” Hedge Fund Law Report, Vol. 6, No. 41 (Oct. 25, 2013); “Protecting Hedge Funds’ Trade Secrets: What a Difference a Year Makes
,” Hedge Fund Law Report, Vol. 5, No. 16 (Apr. 19, 2012); “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). In a guest article, Sean R. O’Brien, Sara A. Welch and A.J. Monaco – Managing Partner, Counsel and Associate, respectively, at O’Brien LLP – consider the other edge of that sword, addressing the following questions: What exposure do hedge fund managers have when new employees arrive and bring with them information that they do not own, and what can hedge fund managers do to reduce the likelihood that they will be the subject of a theft of trade secrets or other similar claim when employees join them? As set forth in this article, a hedge fund manager’s exposure to such claims can be significant, but at the same time there are a number of relatively simple steps hedge fund managers can take during the hiring process and otherwise to markedly reduce the risk of trade secret claims.