Hedge Funds: Alleged Theft of Citadel’s $100 Million Trading Strategy

January 14, 2020 | Alternative Investments

Citadel Securities sues GSA for allegedly acquiring the highly confidential strategy from its employee through improper means.

Citadel’s ABC strategy, which it uses to generate “many millions of dollars each year” trading US and European stocks, is at heart of a lawsuit. Billionaire Ken Griffin owns Citadel.

The hedge fund has gone to court against London-based GSA Capital Partners and five of its senior executives.

It’s charge: That GSA obtained the highly confidential algorithm and other sensitive material illegally. It did so by colluding with Vedat Cologlu, a senior manager and quantitative researcher at Citadel. The strategy is referred to in court documents as the “ABC Strategy,” as reported by the Financial Times.

According to the hedge fund, GSA and Cologlu formed an “unlawful means” conspiracy.

Citadel’s ABC strategy: valuable algorithm

Citadel contends that it developed the “highly valuable,” “proprietary and highly confidential” strategy at the cost of over $100 million. Further, the hedge fund claimed it “generates many millions of dollars each year.”

According to Bloomberg, the ABC algorithm earned more than $50 million annually trading stocks in the US and Europe.

Cologlu was allegedly switching jobs to GSA

It is also Citadel’s contention that Cologlu was in the midst of changing jobs and moving over to GSA to set up a new trading team for the latter. The ABC Strategy was central to this transfer, and Cologlu allegedly handed over a paper document that contained the “most sensitive confidential information relating to certain of its most valuable algorithmic trading strategies.”

Under-the-radar means of communication

Citadel also alleged that the GSA-Cologlu combine agreed to use texts and WhatsApp in all their communications rather than traceable e-mails.

The firm detected Cologlu’s machinations because he sent the trading plan to his work email account. He later admitted to Citadel’s legal team that he’d shared the plan with GSA.

Hedge funds in general, and Citadel in particular, are paranoid about the security of their data, operations, and trading methodologies.

The book “Flash Boys” by Michael Lewis reportedly revealed that it took a Citadel employee five ID card swipes simply to start her day.

GSA to defend itself

Citadel has demanded in court that GSA be ordered to pay damages, stop using the confidential information, and give details of all profits it earned from its unauthorized use.

According to reports, Cologlu is no longer in the hedge fund’s employ.

GSA has stated that the company and all the individual defendants reject the plaintiff’s claims and will defend themselves vigorously.

Related Story: In Focus: The Meteoric Rise of Ken Griffin’s Citadel Securities                                               

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