Two Sigma Investments, the New York hedge fund firm that manages some $18 billion, has previously accused a Chinese national who worked at the firm of stealing confidential information related to its secretive quantitative trading business. The hedge fund firm launched a lawsuit against Jianjun Qiu in 2006 that accused the software developer of stealing intellectual property and fleeing to China. The lawsuit was settled in 2007 and Qiu returned to the U.S. to work at major financial firms like
In a separate and recent case, lawyers for Two Sigma successfully obtained an order of attachment and injunction from a New York state judge on Thursday against Kang Gao, a former Two Sigma quantitative analyst who has been arrested and charged by Manhattan District Attorney Cyrus Vance of stealing documents from Two Sigma that detailed the methods and application of two trading models. Gao has pleaded not guilty in the criminal case, according to the lawyer who represented him at the arraignment, Benjamin Yu. Forbes first broke the news of Gao's arrest on Wednesday.
Judge Jeffrey Oing yesterday froze $385,000 in Gao’s bank account at the New York branch of
Gao, a 28-year-old Chinese national who came to the U.S. in 2006 to study at the Massachusetts Institute of Technology, started working for Two Sigma in 2010 as a computer system analyst. The hedge fund firm paid Gao hundreds of thousands of dollars in salary and bonus last year, according to a court document that was filed by Two Sigma. Gao resigned from Two Sigma on February 5. Two days later, Two Sigma notified the Manhattan District Attorney’s Office of “unlawful actions,” according to a civil complaint Two Sigma filed against Gao in New York state court in Manhattan. According to the complaint filed by Two Sigma, the hedge fund notified the authorities because Gao had misappropriated confidential information as part of “an apparent plan to take that information to a new employer, either one of Two Sigma’s competitors in the United Kingdom, or to start his own business in China.”
Hedge funds that use sophisticated mathematical trading models to trade financial markets pay extraordinarily well to attract top talent, often including math and computer experts from foreign countries like Russia and China. These hedge funds also guard their quant secrets vigorously. In its complaint against Gao, Two Sigma, which was founded by John Overdeck and David Siegel, describes its trading models as “the lifeblood of its business” and said it employs sophisticated masking programs and firewalls, and closely monitors its employees’ computer usage. Financial firms have been quick to get law enforcement involved when they believe employees have put their key data or models at risk. Vance is currently prosecuting the most high profile of these kinds of cases against Sergey Aleynikov, a computer programmer whose original federal conviction for stealing code from Goldman Sachs was overturned by a federal appeals court in 2012. Some critics, like journalist Michael Lewis, have wondered if Goldman Sachs overstepped in working to get one of its former programmers criminally charged. Some legal experts have questioned the legal basis of such prosecutions.
In Two Sigma’s case against Qiu, there was no criminal prosecution, but the hedge fund did launch explosive accusations against their former employee. Two Sigma hired Qiu to work as a software developer in 2004. According to the complaint Two Sigma filed against Qiu, the hedge fund determined in November 2006 that Qiu had transferred confidential Two Sigma information to his home computer through the hedge fund’s virtual private network. Lawyers for Two Sigma confronted Qiu, who denied he was running Two Sigma’s software on his home computer or that he was using a computer belonging to Two Sigma at his home, the complaint says. After Qiu demanded an attorney and refused to allow Two Sigma personnel to inspect his home computer, the hedge fund placed Qiu on leave pending an investigation and escorted him out of Two Sigma’s building, the complaint alleges.
According to the complaint filed by Two Sigma, Qiu soon after sent an email to his Two Sigma manager stating that he was fleeing to China and admitting he had spent two years analyzing the hedge fund’s intellectual property. Days later, a Two Sigma representative met with Qiu in Guangzhou, China, where the hedge fund claimed Qiu admitted he was in possession of enough Two Sigma data to fill “ten computer hard drives,” says the complaint Two Sigma filed against him.
Court documents indicate that Two Sigma and Qiu settled the case. Qiu returned to the U.S., where he found a job at Morgan Stanley. In 2011, Qiu took a job as a developer at Citadel, one of the most famous hedge funds that employed quantitative trading. Qiu kept working at the big Chicago hedge fund firm until 2012, when he left the firm as part of a restructuring. Efforts to reach Qiu were unsuccessful and Two Sigma did not respond to a request for comment.
