UPDATE: Ownership Questions In Other Uploaded Codes At Teza
October 05 2009 - 8:07PM
Dow Jones News
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 their 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 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
pursuing an injunction against both men for violating their
non-compete agreements.
Chicago-based Citadel is also seeking $300 million in damages
from the defendants.
Teza caught Citadel's attention in July when Sergey Aleynikov, a
former Goldman Sachs programmer hired by the startup firm, 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 market 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.
Representatives of UBS, which was subpoenaed in the Teza case,
were not immediately available for comment.
Since Aleynikov's arrest, Sterling said that the FBI has taken
possession of three Teza workstations and one server, though
authorities haven't yet told the firm what they have found.
Teza, according to Sterling, never encouraged employees to use
any code that could be property of another company, something he
said would run counter to the nascent company's culture.
"Anything we use is purely developed in-house," he told Judge
Mary K. Rochford Monday.
Sterling added that he takes the issue of coding theft
seriously; prior to his leaving UBS he discovered firsthand that
another UBS employee had sent a "significant amount" of UBS source
code to a personal email address.
Sterling said he reported his discovery to UBS's human resources
department.
In March, UBS filed a lawsuit against three former members of
its algorithmic trading group who had moved to Jefferies & Co.,
accusing them of misappropriating trade secrets and violating
contractual agreements.
In Citadel's case against Teza, other legal arguments Monday
centered on whether Teza was creating trading strategies, which
would put Kohlmeier and Malyshev in violation of their non-compete
agreements with Citadel.
Like the former Citadel officials, Sterling said that the work
being done at Teza amounted to setting up infrastructure - testing
software and connectivity tools while evaluating connections to
exchanges
While Sterling said that Teza has developed some programs that
could be used for quantitative trading, these were "only a small
part of what is necessary to do those things," and the likelihood
of Teza's trading operation being operational by a Dec. 1 start
date was "not realistic at this point."
The case will continue Tuesday.
-By Jacob Bunge, Dow Jones Newswires; 312-750-4135;
jacob.bunge@dowjones.com