Citadel Securities Says GSA Stole Data While Recruiting Trader

(Bloomberg) -- A British hedge fund’s attempt to hire a senior trader from Citadel Securities has landed it in a London lawsuit filled with allegations that it obtained a secret trading strategy while using texts and Whatsapp messages to hide all traces of the plan.

GSA Capital LLP accessed confidential information on a crucial automated trading model that cost Citadel more than $100 million to develop, the U.S. market maker said in a London court filing. In the latest case to highlight how far financial firms will go to protect trading ideas, Ken Griffin’s firm is seeking to block GSA from ever using the algorithm.

GSA’s attempted recruitment of Vedat Cologlu was marked by the fund’s strict instruction to the trader to avoid emails and stick to Whatsapp messages and texts, Citadel said in its account of his hiring. Cologlu was to be a key part of GSA’s plan to set up a new high-frequency trading business.

But Citadel claims the fund wanted more. GSA asked for sensitive information on his equity-trading including his profits and the speed of the trades. And then Cologlu handed over a plan that Citadel argues was based on its own confidential model, including the way the algorithm made predictions.

The case, filed last month, lays out the steps that funds will take to protect automated strategies where companies deploy computing power to identify trades promising the biggest mismatches or largest payoffs with the least amount of risk. British quantitative research fund G-Research pursued a years-long case against a former analyst, seeing him sentenced three times for stealing confidential strategies.

GSA was spun out of Deutsche Bank AG in 2005 and manages around $7.5 billion. Citadel’s legal filing names GSA founder and majority owner Jonathan Hiscox as a defendant, alongside other officials including the chief technology officer. It has yet to file its formal defense, but said Wednesday it rejects the claims and plans to vigorously defend itself.

‘ABC Strategy’

At the center of this case is Citadel’s “ABC Strategy,” a closely-guarded algorithm that was generating more than $50 million a year trading stocks in the U.S. and Europe. Cologlu helped operate and administer the models, and as they stepped up hiring plans GSA officials were told that the returns were notably high given the low level of risk it took on.

GSA officials must have been aware of the need for secrecy, Citadel argued, because they regularly sought to keep details of the courtship out of emails where they could be easily discovered. In May 2019, GSA’s head of recruitment Douglas Ward emailed a junior employee saying that the job interview questions be “Kept off e-mail.”

“GSA well knew that Mr. Cologlu’s responses would contain or would be derived from Citadel’s confidential information and hoped to conceal their wrongful conduct,” Citadel’s lawyers said in the filing dated Dec. 16.

Trading firms and hedge funds, who have for long used fat pay checks to lure employees, are engaged in an intense battle to hire and retain talent. The latest front line is to recruit technologists who are seen as key to future-proof trading strategies.

Cologlu, who earned more than $700,000 in 2018 as a quant researcher, was looking for a move after 11 years at Citadel. The firm cited messages saying Cologlu was keen to build out his own business and believed there was a market to trade European stocks. GSA for its part dubbed the plan “Project High Speed Rail” and was making moves to enter the high-speed algorithmic trading business by joining the Turquoise trading facility run by the London Stock Exchange, according to the lawsuit.

‘Called Out’

But by June, Citadel learned that Cologlu sent the trading plan to his work email account and began investigating. The GSA recruiter speculated Cologlu had “been called out by Citadel.”

It was an accurate guess. Cologlu told Citadel’s legal team that he’d provided GSA with the trading strategy plan. According to the lawsuit, Cologlu has been suspended, but a person familiar with the situation said he has left the company.

Citadel says that after GSA was confronted about its meetings with Cologlu, an internal lawyer agreed to cooperate and shredded the hard copies of Cologlu’s trading plan.

In addition to damages, Citadel is seeking an injunction to stop GSA from using any of its confidential information. It has also asked a judge to order GSA to destroy all paper and computer copies of the information.

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