* Citadel petitions Jump to turn over algorithms, records
* Citadel says some trading strategies now less profitable
* Jump calls petition frivolous attempt to learn secrets
By Dan Wilchins and Herbert Lash
June 4 Citadel, one of the world's largest hedge
fund managers, has accused a rival Chicago high-frequency
trading firm of stealing its trading programs.
It said in a court petition that at least one its former
employees stole trading algorithms and brought them to Jump
Trading, a firm that employs 325 people in Chicago, London and
Citadel is using an unusual legal strategy to try to glean
information from Jump - it is petitioning an Illinois state
court for documents before filing a lawsuit, a move that is
legal in that state.
Jump Trading said in a motion to dismiss late last month
that the hedge fund's request is frivolous and an effort to win
competitive information through the courts.
"Citadel's petition has no merit whatsoever. Jump plans to
defend against the motion aggressively," said Tessa Wendling,
general counsel at Jump.
A spokeswoman for Citadel, which has about $12 billion in
net assets and is led by Kenneth Griffin, declined to comment.
Citadel's efforts to learn information before even filing a
lawsuit reflect just how zealously some hedge funds and Wall
Street firms will fight to protect their trading codes, which
have become a bigger source of revenue in recent years.
In 2009, Citadel filed a lawsuit accusing former senior
trader Mikhail Malyshev and two other ex-employees of violating
non-compete clauses in starting their own firm. Malyshev's group
at Citadel used trading algorithms to exploit small mispricings
in the market.
According to Citadel's petition, about 10 employees from
that same area, Citadel's tactical trading group, have moved to
Jump Trading since 2005.
Over that time, some of the strategies used by Citadel's
tactical trading group have become less profitable. According to
the fund manager's petition, the strategies are behaving in a
way consistent with their having been copied by rivals.
Citadel is looking for Jump to hand over personnel
documents, strategy and trading records, and source code.
Citadel also wants to take depositions from its former employees
who are now at Jump.
The hedge fund manager is not accusing its former employees
of violating non-compete agreements, but does believe employees
may have violated non-disclosure agreements.
In its response filing, Jump said that Citadel had no
evidence that the algorithms had become less profitable because
of any of Jump's actions. It said that any of the hundreds of
other algorithmic trading firms could be at fault.
"The petition is nothing more than a transparent attempt by
Citadel to obtain a competitive advantage by gaining access to
Jump's proprietary and confidential trading strategies," Jump's
In the 2009 lawsuit, Citadel successfully won an injunction
barring Malyshev and his two colleagues from working at Teza
Technologies through November 2009.