Teza Founders Saw Risk Of Citadel Reprisal -Employees
07 October 2009 - 6:34AM
Dow Jones News
Employees of Teza Technologies knew the start-up trading firm
faced serious risk of legal action from Citadel Investment Group,
the previous employer of Teza's founders, and were told to be
discreet about the new venture, according to court testimony
Tuesday.
Several computer programmers hired last spring by the nascent
high-frequency trading venture said that Teza executives warned
them about reprisal from the Chicago-based hedge-fund giant, which
this week pressed a legal case against Teza's founders alleging
that they violated terms of their noncompete agreements with
Citadel.
Teza's defense hinges on the argument that its founders, Misha
Malyshev and Jace Kohlmeier, were overseeing the development of
Teza's technical infrastructure, rather than creating actual
trading strategies, which is forbidden by their Citadel noncompete
agreements for a period of nine months following their
resignation.
Chicago-based Citadel is looking to defend against the loss of
two key members of its high-frequency trading group, which Malyshev
and Kohlmeier helped build into a $1 billion business over the last
four years.
High-frequency trading, driven by computer programs, seeks
profits through rapid-fire transactions across multiple exchanges
and trading venues, and has helped banks and proprietary trading
firms make healthy returns as the broader market struggles.
In a videotaped deposition played before the court, Teza
programmer Vladimir Roubtsov said that one of the first things he
asked Malyshev after being approached for a job was whether Teza
was in a legal gray zone.
"[Malyshev] said that he was subject to noncompete restrictions,
which meant we won't be able to trade or develop strategies unless
all the initial work will be concentrated on building
infrastructure," said Roubtsov.
Malyshev and Kohlmeier, who began setting up Teza Technologies
after departing Citadel in February, have stressed in their own
testimony that they are not developing trading strategies.
In his own videotaped deposition, Teza programmer Demian
Kosofsky said that he knew of no one at the firm working on trading
strategies.
While he acknowledged discussing trading "signals" with
Kohlmeier in early June, he said these were "dummy signals"
designed for the purposes of testing the infrastructure that
Kosofsky was developing.
According to Roubtsov's testimony, Malyshev also told Roubtsov
to be discrete about working for Teza.
"The gist of his message was to not broadcast the fact that I
now work for Teza," said Roubtsov. "For example, not to put Teza's
name in my LinkedIn profile."
Steven Horn, another Teza programmer who appeared in a
videotaped deposition, said that he was warned by Teza Chief
Information Officer William Sterling of potential "legal
complications" facing the start-up, when both Horn and Sterling
were still employed by UBS AG (UBS).
Teza is dealing with other legal issues stemming from the July
arrest of Sergey Aleynikov, a former programmer at Goldman Sachs
Group Inc. (GS) charged with stealing code from the Wall Street
bank. Aleynikov was subsequently fired from Teza.
On Monday, Sterling said that there were ownership questions
around other pieces of code uploaded to Teza's database by
programmers, and that Teza opted not to use any of that code in
favor of being "conservative."
Roubtsov, in his videotaped deposition, acknowledged that he too
may have uploaded coding that was "misappropriated."
He said that he contributed to Teza code that was also present
in a public open-source project of his, and incorporated into work
he had done for a firm called Totem.
"It is possible that Totem can claim rights to that code,"
Roubtsov said. "I find it difficult to assign ownership to it,
because it was done based on ideas I had going back many
years."
-By Jacob Bunge, Dow Jones Newswires; 312-750-4135;
jacob.bunge@dowjones.com