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Litigating Trade Secret Claims

By Paul Cowie and Dorna Moini
June 02, 2014

In February 2014, a quantitative analyst at a New York hedge fund was arrested for using a decompiler program to view his employer's encrypted trading models and then sending them to his personal e-mail. He allegedly planned to take this information to a new employer, apparently for significant financial incentives. The incident is reminiscent of another widely publicized theft at Goldman Sachs. In 2009, a week before quitting his job to join another trading firm, Sergey Aleynikov, a programmer at Goldman Sachs, downloaded 32 megabytes of a proprietary algorithmic trading code from his employer. The code, which some called Goldman's “secret sauce,” was used for a high-frequency trading (HFT) system, whereby traders use computer algorithms to rapidly trade securities, taking advantage of minute price changes to make a profit. Aleynikov had been offered $1.2 million per year to join a startup seeking to develop its own HFT system. He took that offer and was arrested by FBI agents at Newark Airport before making the jump.

Although high-profile, these are not isolated incidents. Former employees escape with valuable information every day, resulting in substantial, sometimes devastating losses to employers. Some employees claim the trade secrets belong to them; others attempt to explain away their conduct. Devices such as the new untraceable Blackphone, developed by Spanish startup Geeksphone, adds another layer of complication as it encrypts e-mails and text messaging, and has anti-tracking services that will make it much more difficult to discover employee misconduct and gain access to data during litigation.

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