While most in the United States were celebrating the Fourth of July holiday, a Russian immigrant living in New Jersey was being held on federal charges of stealing secret computer trading codes from a major New York-based financial institution.
Authorities did not identify the firm, but sources say the institution is none other than Goldman Sachs (GS.N).
The charges, if proven, are significant because the codes that the accused, Sergey Aleynikov, tried to steal are the secret sauce to Goldman's automated stock and commodities trading business.
***
The platform is one of the things that gives Goldman an advantage over the competition when it comes to the rapid-fire trading of stocks and commodities. Federal authorities say the platform quickly processes rapid developments in the markets and using secret mathematical formulas, allows the firm to make highly-profitable automated trades.
The criminal case has the potential to shed a light on the inner workings of an important profit center for Goldman and other Wall Street firms. The charges also raise serious questions about the safeguards that Wall Street firms deploy to protect these costly-to-build proprietary trading systems.
I think everyone who follows this blog knows the key to a trade secrets case is how well and in what ways the business keeps those secrets secret.
Hartford said in the lawsuit, filed today in New York state Supreme Court, that Arch “conducted an unlawful corporate ‘raid’” by hiring more than 60 managers, underwriters and employees from a unit that insures financial obligations and corporate boards. Hartford Financial Products, the New York- based subsidiary, employs about 250 people.
Hartford is guarding against employee and client defections after three consecutive quarterly losses depleted capital and a $3.4 billion U.S. bailout raised the prospect of government- imposed compensation curbs. Arch and a unit of Berkshire Hathaway Inc. settled a suit last year stemming from allegations that Arch stole trade secrets.
Hartford said in its complaint that Arch conspired with David McElroy, who left his job as president of the Hartford unit on June 5, to gain trade secrets and client information. McElroy, who is also named in the lawsuit, cooperated with Arch’s efforts to hire Hartford underwriters through “threats, bullying and repeated disparagement” of the insurer, according to the complaint.
Also from New York, Courthouse News Service reports on Ex-Partner Accused of AIP Trade Secret Theft:
A former managing partner of American Institutional Partners masterminded a scheme to steal the company's trade secrets from its owner, Pelican Equity claims in Federal Court.
Pelican Equity, which owns AIP's rights, says Robert Brazell partnered with Stephen Norris to form Talos Partners in order to steal AIP's confidential busines information for their own gain. At the time, Brazell was a managing partner of AIP, a stock loan business. The complaint paints a colorful picture of him, quoting his 2008 email to AIP founder Mark Robbins, in which he said he "humped the Prudential brochure" because he was so excited to be a partner in AIP.
Brazell used the company's computers to copy a Web site that AIP was developing, which he used for Talos, the lawsuit states. Pelican claims the copying was so sloppy that early forms of Talos' site still referred to AIP.
In the last 90 days, the defendants - acting through Talos - have closed more than $500 million in stock loans and have amassed a balance sheet of $350 million using AIP's confidential information, the suit states.
All right, I admit this raised my eyebrows. Hard to imagine the ineptitude of a managing partner who could not make sure that the highjacked HTML did not mention his old firm, but lucky for AIP that they did not. Thoughts of arrogant, boneheads from Wall Street do not need much stirring during the current state of our economy but those thoughts apply to both sides of this case. Again, what did AIP do to protect its trade secrets?
I do want to note a new trade secrets blog: Trading Secrets. Just found them via Google Alerts and only have had time to read FLIR Systems, Inc. v. Parrish: A Cautionary Tale for Trade Secrets Misappropriation Plaintiffs. I mentioned this case here. This post details what went wrong in the case and it is probably too long a critique for me to quote in full but I am compelled to point out these paragraphs:
• The absence of any evidence of misappropriation or threatened misappropriation of trade secrets. Notably, there was evidence at trial that one of the defendants, Parrish, had downloaded technological data onto a hard drive before leaving Indigo, and that he destroyed the hard drive a few months before the lawsuit was filed. Although evidence that an employee has downloaded confidential information shortly before leaving his employer is typically significant to support a misappropriation claim, here, the evidence was discounted because defendants first learned of the download after the complaint was filed, so it was not a consideration for bringing suit, and the download was not a threatened misappropriation because there was no evidence that the contents of the hard drive, “if such contents existed, were improperly accessed, used, or copied before the drive was destroyed.”
• Evidence that FLIR and Indigo had an anticompetitive motive in filing the lawsuit. On this point, the court found significant the testimony of FLIR’s CEO, who testified that “we can’t tolerate a direct competitive threat by [Parrish] and [Fitzgibbons],” inferring that the CEO had no evidence of wrongdoing but was bothered that defendants planned to compete with FLIR in the future. The Court also found significant the fact that another FLIR officer had voted to file the lawsuit but had no personal knowledge that defendants had committed a wrongful act.
• Failure by FLIR and Indigo to identify what trade secrets would be subject to the permanent injunction. The Court found as “strong evidence of bad faith” FLIR and Indigo’s proposed injunction, which barred defendants from developing certain products for a 12-month period even if they did not use FLIR and Indigo’s technology or trade secrets.
Trade Secrets Vault notes an interesting case with Dialysis centers locked in battle. What really perked me up was this from the original newspaper source:
DaVita has filed similar lawsuits against doctors and treatment centers in at least four other states, the newspaper reported.
DaVita issued a short statement saying ‘‘maintaining strong relationships with our business partners is a primary concern.’’
I did not know the dialysis business was so cut-throat. I think I might be even be a bit surprised.
And so ends this week of trade secrets litigation.
Posts
Nice written about Trade Secrets.
ReplyDeleteApostille info