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Jane Street is suing Millennium Management and two former employees for allegedly stealing trade secrets in a rare public spat between two big Wall Street investment firms.
In a complaint filed in federal court in Manhattan on Friday, Jane Street alleged that Douglas Schadewald and Daniel Spottiswood, two former employees who defected to the multi-manager firm earlier this year, had stolen a “highly valuable, unique, and proprietary” trading strategy.
Jane Street said in the complaint, parts of which were redacted, that its profits from the secret strategy plummeted by 50 per cent within weeks of Schadewald joining Millennium, and that a “new entity . . . started placing orders mirroring the trading strategy”.
The secretive trading firm contended that Millennium, Schadewald and Spottiswood misappropriated trade secrets and unjustly enriched themselves, and accused the two men of breaching their confidentiality agreements. Jane Street also alleged that Millennium gave Schadewald 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 and hard-earned investments — its intellectual property and trade secrets,” Jane Street alleged in the complaint. It is seeking to stop Millennium from using the strategy and unspecified damages.
Millennium, a $62bn hedge fund founded by Izzy Englander, did not immediately respond to a request for comment. Jane Street declined to comment beyond the lawsuit.
The lawsuit sets up a titanic struggle between members of Wall Street’s new royalty over a strategy that Jane Street said can “reliably predict future market activity”.
Theft of trade secret claims have become more common as investment firms have become increasingly reliant on technology, algorithms and artificial intelligence to wring profits from fast-moving markets. A former analyst from Two Sigma pleaded guilty in 2015 to stealing proprietary trading models from the hedge fund, and a Goldman Sachs computer programmer was prosecuted 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 claims that two former Renaissance Technologies employees had improperly used the firm’s quantitative trading strategies after moving to Millennium.
Jane Street, which was founded in 1999, does not make its employees sign non-compete agreements, and it said the firm had never sued a staffer who had left it for a competitor. The strategy that was at issue is not based on “sophisticated automated computer programmed trades”, it said in the complaint.
“Such competition by former employees, when lawful, is expected and Jane Street has no issue with such departures,” the firm said in its lawsuit. “However, Jane Street cannot simply surrender its confidential information and trade secrets to former employees who breach their confidentiality obligations for, and to the benefit of, competitors.”
Schadewald started at Barclays and then moved to Jane Street. He worked there from October 2018, and headed the firm’s S&P 500 options desk until his move to Millennium in February. Spottiswood worked for Jane Street from August 2020 to February.
Jane Street said Schadewald had described the secret strategy as “super valuable” and something that the firm’s leaders “definitely dont [sic] want people knowing” during his time at the firm, according to the lawsuit.
He also allegedly suggested that Jane Street remove the strategy’s profits from its internal profit-and-loss records “because it was so profitable that it might attract undue attention and increase the risk of a confidentiality breach”, the lawsuit said.
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