Former Citadel Executive Denies Deliberately Erasing Evidence
By Andrew M. Harris
Oct. 1 (Bloomberg) -- Mikhail Malyshev, the former Citadel Investment Group LLC executive sued for allegedly launching a competing firm, denied intentionally erasing evidence related to a lawsuit aimed at blocking his business.
Citadel, in a July complaint, accused Malyshev of breaking a promise not to compete with the $14 billion hedge fund manager. Yesterday during court testimony, he faced questions from that firm’s lawyer about an employee’s alleged theft of computer code from Goldman Sachs Group Inc. and his own erasure of electronic files after being sued.
“It was not my intent to destroy evidence related to this case,” Malyshev told Citadel attorney Brian Sieve during the hearing in Illinois state court in Chicago.
Among the files Malyshev acknowledged irretrievably deleting by using scrubbing software on his computer were adult videos he didn’t want discovered.
Malyshev wiped the files the same day he was sued, after his lawyers had agreed to an evidence preservation order before Cook County Circuit Court Judge Mary Rochford, he said.
“It was a panicked decision, a stupid one,” he said.
Malyshev led Citadel’s high-frequency trading group, with co-defendant Jace Kohlmeier as his top deputy. Together the men ran a department that made more than $1 billion last year, using software to make split-second trades for fractions of a penny.
Attorneys for Malyshev and Kohlmeier, both of whom quit Chicago-based Citadel in February, have argued that the nine- month noncompete agreements they signed do not bar preparations for launching a new business, only actual competition.
‘Other Side’
“Hear the other side,” defense lawyer Chris Gair said outside court, after his client answered questions under oath for more than three hours. Gair declined to comment further.
Malyshev is scheduled to take the stand again today, to be questioned by Gair for the first time in the proceeding.
Citadel sued the men and their startup business, Teza Technologies LLC, on July 9 after learning that an employee, Sergey Aleynikov, had been arrested by federal agents in New Jersey for allegedly stealing proprietary computer code from the New York investment firm Goldman Sachs.
Aleynikov had started working for Teza one day before his arrest, according to Citadel’s original complaint.
Teza said at the time that Aleynikov passed background checks before being hired. The firm, which suspended Aleynikov without pay, said he had indicated he wasn’t violating anyone’s intellectual property rights.
Code Uploads
Yesterday, Malyshev testified that his firm doesn’t permit the uploading of third-party computer code to its systems and acknowledged that Aleynikov had done so.
When Citadel’s Sieve asked if that code had been stolen from Goldman Sachs, Gair objected, telling the judge there was “never any suggestion that Goldman Sachs code was uploaded to Teza’s computers and he knows it.”
Malyshev said he didn’t believe the Aleynikov code was the same code. “In fact, we know it’s not,” he said.
The Teza chief executive officer also acknowledged that the FBI still has at least three of his firm’s computers as well as a server and other data storage units.
Citadel is asking Rochford to block Kohlmeier and Malyshev from building their business for the full nine-month term of their agreements. The hedge fund is also pursuing the men for money damages in an arbitration proceeding.
Citadel Senior Managing Director James Yeh, who testified Sept. 29, told Gair under cross examination yesterday that his firm was seeking $300 million in damages from Malyshev and Kohlmeier.
The defendants, said Yeh, “are competing during a time in which they shouldn’t be.”
The case is Citadel Investment Group LLC v. Teza Technologies LLC, 09CH22478, Chancery Division, Cook County, Illinois, Circuit Court, (Chicago).
To contact the reporter on this story: Andrew M. Harris in Chicago at aharris16@bloomberg.net.
Last Updated: October 1, 2009 00:01 EDT |
