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Citadel sues former employees who set up Teza Tech

BOSTON (Reuters) - Citadel Investment Group, one of the world’s most powerful hedge fund firms, sued a former top executive in its highly successful quantitative trading unit and two others for setting up their own firm.

Chicago-based Citadel, founded by 41-year-old billionaire Kenneth Griffin, said in a lawsuit filed on Thursday that Mikhail Malyshev and two other former employees had violated their noncompete clauses by starting their own firm, Teza Technologies LLC.

Teza Technologies made headlines this week when it was identified as the firm that had hired a former Goldman Sachs Group Inc GS.N computer programer whom federal prosecutors had accused of stealing trade secrets from the Wall Street investment bank.

Malyshev, a Russian emigre with a doctorate in astrophysics from Princeton, left Citadel’s quantitative trading unit in February after the funds he helped run returned about 40 percent last year. Their performance stood out at a time most hedge funds lost money and Citadel’s flagship portfolios tumbled 50 percent.

Like all employees who leave the $11 billion hedge fund firm, Malyshev faced a nine-month noncompete clause. A source at Citadel said the hedge fund had found out about Malyshev’s new firm this week.

Former Citadel employees Jace Kohlmeier and Matthew Hinerfeld are also listed on the civil complaint.

A spokesman for Teza called the suit “frivolous” and said it “appears to be timed to harass Teza executives.”

Reporting by Svea Herbst-Bayliss and Christian Plumb; Editing by Lisa Von Ahn

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