Citadel Commences Action Against a Former Employee for Misappropriation of Confidential Information with the Intent to Aid a Competitor

Useful proprietary trading technologies are expensive to develop, easy to copy and significantly undermined if obtained by a competitor.  Not surprisingly, therefore, a significant body of civil and criminal case law, as well as commercial best practices, have developed around the protection of proprietary trading technology.  On the civil side, for example, the allegations in a complaint filed on August 29, 2011, by Citadel LLC (Citadel) against former employee Yihao Ben Pu (Pu), echo legal allegations brought by Citadel in July 2009 against the founders of Teza Technologies (Teza), and allegations in unrelated complaints.  See “Citadel Investment Group Sues Former Employees Alleging Violations of Non-Disclosure, Non-Solicitation and Non-Compete Agreements,” Hedge Fund Law Report, Vol. 2, No. 28 (Jul. 16, 2009); “Opus Trading Fund Accuses Former Trader That Joined Competitor of Breach of Contract and Misappropriation of Proprietary Information,” Hedge Fund Law Report, Vol. 4, No. 13 (April 21, 2011); “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).  On the criminal side, the most notable recent case was the DOJ’s action against Sergey Aleynikov, who joined Teza from Goldman Sachs.  See “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).  Regarding commercial best practices for protection of trading technology in the hedge fund context, see “How Can Hedge Fund Managers Prevent Theft of Proprietary Trading Technology and Other Intellectual Property?,” Hedge Fund Law Report, Vol. 2, No. 33 (Aug. 19, 2009).  This article details the allegations in Citadel’s complaint against Pu, and concludes with a note on the procedural posture of the matter.

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