Trading codes allegedly stolen from Goldman Sachs Group Inc. (GS) were just one of several instances in which employees of Teza Technologies LLC uploaded code that could have belonged to other firms, Teza's chief technology officer said in testimony Monday.

Testifying in Illinois Chancery Court, Teza's William Sterling said that there were two other cases in which the startup high-frequency trading firm removed codes from its central data repository due to questions around its licensing and nature, including some code written by a former UBS AG (UBS) employee prior to his joining Teza.

"We decided not to use that code," said Sterling, also a former UBS employee who joined Teza in June. "Our goal was to be very conservative."

Sterling testified Monday in a case brought against Teza by Citadel Investment Group LLC, the Chicago-based hedge fund operator that is seeking an injunction against the startup high-frequency trading firm headed by two former Citadel employees, Misha Malyshev and Jace Kohlmeier.

Malyshev and Kohlmeier, former members of Citadel's high-frequency trading group, departed in February, and Citadel is now pursuing an injunction against both men for violating their non-compete agreements, as well as damages.

Their firm caught Citadel's attention in July when Sergey Aleynikov, a former Goldman Sachs employee hired by Teza, was arrested by the FBI on charges he stole computer codes from his former employer.

Teza subsequently fired Aleynikov, now facing charges in a Manhattan federal court.

On Monday, Sterling said that after joining Teza, another former UBS employee had uploaded to Teza servers code for the rapid storage and retrieval of data, which the Teza employee had written while still working for UBS.

However, Sterling said that he didn't believe the code belonged to UBS; it hasn't been turned over to UBS and Sterling said he wasn't aware of any conversations with UBS regarding the code.

Since that time, Sterling said that the FBI has taken possession of multiple Teza servers and received access to Teza workstations, though authorities haven't yet told the firm what they have found.

Kohlmeier, now president of Teza, testified Monday that legal action brought by Citadel could put his new company in jeopardy, as he continued to deny violating a non-compete agreement with the Chicago-based hedge fund firm.

He maintained that his start-up wasn't developing trading strategies in the months immediately following his departure from Citadel. He warned against an injunction that could shutter Teza and harm its employees.

"There's a serious risk that if the injunction Citadel seeks is granted, that our company would not be able to financially sustain itself," said Kohlmeier.

In Citadel's case against Teza, legal arguments early Monday focused on whether Teza was creating trading strategies, which would put Kohlmeier and Malyshev, chief executive of Teza, in violation of their non-compete agreements.

Kohlmeier insisted that the work being done at Teza amounted to setting up infrastructure - testing software and connectivity tools while evaluating connections to exchanges like CME Group Inc. (CME) and NYSE Euronext's (NYX) derivatives platform, Liffe.

He also denied that a proposed piece of coding, designed by a Teza employee to predict changes to IBM Corp.'s (IBM) share price one second into the future, constituted a trading strategy and instead compared it with a "calculator" that wouldn't produce tradeable results.

Despite the work done setting up the firm, Kohlmeier said that Teza is "by no means ready to trade, so it doesn't compute how it could be constituted as a competitive threat."

Kohlmeier acknowledged that by creating Teza with Malyshev, he risked tens of millions of dollars in deferred compensation from Citadel. He also said that during the course of interviewing for positions at Teza, the company stopped pursuing candidates who were also considering jobs at his former employer.

Citadel wants the full nine-month non-compete agreements with Kohlmeier and Malyshev enforced, and in separate arbitration is pursuing $300 million worth of damages from the defendants, along with $100 million from a former Citadel lawyer now serving as Teza's general counsel.

The case is expected to continue Tuesday.

-By Jacob Bunge, Dow Jones Newswires; 312-750-4135; jacob.bunge@dowjones.com