Hedge Fund Analyst Jailed for Copying Code

Stealing computer code from investment firms is becoming more common. While the cases in which the culprits are caught appears to be rising, it is reasonable to assume that there are many others where the perpetrators get away for lack of evidence.

In this case, the accused analyst, unhappy over a bonus which may seem extraordinary by the standards of many people in finance - and in tech, admitted copying trading code, but was sentenced for fraud, not theft (which perhaps could not be proved), because he tried to deny who he was to immigration authorities when he fled London for Hong Kong.

This suggests that just as the US government ultimately sentenced legendary gangster Al Capone for tax evasion rather than murder or running a criminal enterprise, those who claim to be victims of this sort of intangible robbery will similarly employ whatever existing, more tangible laws may deliver the desired result. JL

Lindsay Fortado reports in the Financial Times:

(Ke Xu) became unhappy after receiving a bonus of £400,000, when he felt he deserved £1.1m. (He) admitted to accessing and copying “extremely valuable” computer code used in trading algorithms. (He was) accused of accessing code that he was restricted from viewing, deleting files and copying others when he worked for the quantitative hedge fund G-Research
A London hedge fund analyst who admitted to accessing and copying “extremely valuable” computer code used in trading algorithms has been sentenced to four years in prison for fraud.Ke Xu, a Chinese national, had been accused of accessing code that he was restricted from viewing, deleting files and copying others when he worked for Trenchant Ltd, which operates the quantitative hedge fund G-Research. Xu, who worked for Goldman Sachs for six years before joining Trenchant in 2012, was arrested in Hong Kong in August last year, just over a week after he resigned from the fund.
Earlier this week, Xu pleaded guilty to one count of fraud. A second charge, for unauthorised access to a computer, will not be pursued. “Mr Xu clearly abused his position of trust, acting against the company with a view to gain for himself,” prosecutor Michael Andrew Hick told the court on Friday.
Xu became unhappy at Trenchant in early 2014, after receiving a bonus of £400,000, when he felt he deserved £1.1m, Mr Hick said. He began interviewing for jobs at other funds, including Jump Trading and Millennium, but neither offered him a job. Around July, he accepted a job at Cubist Systematic in Hong Kong and began making plans to leave London.
In August, he resigned from Trenchant, leaving a note on his manager’s keyboard explaining that he wanted to join his new wife, who worked in Hong Kong, and be closer to his ill father. He did not mention the new job. Before he left, he deleted about 150,000 documents, and he was seen on the company’s CCTV removing a suitcase from the building.
His abrupt departure alarmed the company and its general counsel was not able to reach Xu the following day. Trenchant began seeking court orders to stop him using the data he had accessed, Mr Hick said. He was confronted at the airport in Hong Kong upon arrival to be served with legal papers but initially denied that he was Ke Xu.
Richard Wormald, a barrister for Xu, said he was initially accessing code that he was barred from viewing for a legitimate purpose: to help him do his job better.
His former boss at Goldman submitted a witness statement to the court that said that Trenchant took an “isolationist approach” to coding, in contrast to Goldman’s “collegiate approach,” and that it was “entirely understandable” that Xu would have wanted to see what his colleagues were creating in order to do his work better.
Xu was “something of a prodigy” who has thrown away a “fabulous career”, Mr Wormald said. “It’s quite a vertiginous fall from getting a first at Cambridge to sitting in the dock,” he told Judge Tomlinson.
But, in sentencing Xu, the judge said: “Most of the people who appear in front of me could only dream of the sort of bonuses from which you would have continued to benefit for many years to come, but which from some of the evidence that I have seen, you felt were inadequate.
“Though your offending may fall short of what is known as ‘copying and carrying away,’ it is plain that in Trenchant’s mind you took something of very high value and it must be the case that that was your intention because you would not have acted as you did unless you believed that you could at least try to deploy the strategies elsewhere.”
He added that Xu must serve at least half the sentence.