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Jane Street is suing Millennium Management and two former employees for stealing trade secrets in a rare public spat between two major Wall Street investment firms.
In a complaint filed in federal court in Manhattan on Friday, Jane Street alleged that Douglas Shadewald and Daniel Spottiswoode, two former employees who defected to the multi-manager firm earlier this year, stole a “high-value, unique and proprietary” trading strategy.
Jane Street said in the complaint, parts of which were redacted, that her profits from the secret strategy fell by 50 percent within weeks of Shadewald joining Millennium, and that “a new entity…would be created.” . . I started placing orders that reflect the trading strategy.”
The secret trading company alleged that Millennium, Shadwald, and Spottiswood misappropriated trade secrets and unjustly enriched themselves, and accused the two men of violating their confidentiality agreements. Jane Street also alleged that Millennium gave Shadewald a “lucrative compensation package” that was “atypical and above market.”
“Instead of developing their own trading strategy, Defendants stole the results of Jane Street’s long-term, hard-earned investments – intellectual property and trade secrets,” Jane Street alleged in the complaint. It seeks to prevent Millennium from using the strategy and deal unspecified damages.
The Millennium Fund, a $62 billion hedge fund founded by Izzy Englander, did not immediately respond to a request for comment. Jane Street declined to comment outside of the lawsuit.
The lawsuit sets up a major tussle between members of Wall Street's new royal family over a strategy that Jane Street said could “reliably predict future market activity.”
Theft of trade secret claims is becoming more common as investment firms increasingly rely on technology, algorithms and artificial intelligence to make profits from fast-moving markets. A former Two Sigma analyst pleaded guilty in 2015 to stealing proprietary trading models from a hedge fund, and a Goldman Sachs computer programmer was tried for a similar crime in 2011, although his conviction was later overturned.
In 2007, Millennium settled a long-running dispute with a rival hedge fund over allegations that two former employees of Renaissance Technologies improperly used the company's quantitative trading strategies after moving to Millennium.
Jane Street, which was founded in 1999, does not force its employees to sign non-compete agreements, and said the company has never sued any employee who left for a competing company. The strategy at issue was not based on “automated, computer-programmed trades,” she said in the complaint.
“Such competition by former employees, when legal, is to be expected, and Jane Street has no problem with such departures,” the company said in its lawsuit. “However, Jane Street cannot simply hand over its confidential information and trade secrets to former employees who breach their confidentiality obligations to and for the benefit of competitors.”
Shadwald started working at Barclays and then moved to Jane Street. He has worked there since October 2018, heading the firm's S&P 500 options desk until moving to Millennium in February. Spottiswood worked at Jane Street from August 2020 to February.
Jane Street said Shadewald described the secret strategy as “very valuable” and something that “the company's leaders certainly don't know about.” [sic] “I want people to know” during his time at the company, according to the lawsuit.
He also allegedly suggested to Jane Street that the strategy's profits be removed from its internal profit and loss records “because they were so profitable that they might attract unnecessary attention and increase the risk of a confidentiality breach,” the lawsuit said.
