For Citadel Investment Group, its lawsuit against a pair of former employees may be about more than a simple non-compete agreement, one of their former team members testified.
Stephen Lazzo, an original member of Citadel’s high-frequency trading group and now manager of software development at the hedge fund, said the departures of the group’s head, Mikhail Malyshev, and Jace Kohlmeier did more damage to the highly-profitable unit than previously thought.
Lazzo, who says he wasn’t offered a job at Malyshev and Kohlmeier’s new firm, Teza Technologies, praised Malyshev as “a good leader” who created “a good vibe within the group. But he added that the two departures jeopardized the “tight-knit, productive group,” causing him to meet with top Citadel executive James Yeh about his concerns about the future of the business, known as Tactical Trading.
Lazzo’s testimony could add weight to Malyshev and Kohlmeier’s claim that Citadel’s case against them is designed as a warning to Citadel employees who might also consider leaving the firm.
Citing the two men’s non-compete agreements, Citadel last week asked a Chicago court to bar Teza and its founders from doing business for at least nine months, the term of the non-compete agreement. The hedge fund sued Malyshev, Kohlmeier and Teza in July, shortly after a Teza employee—since fired—was arrested and charged with stealing proprietary computer code from his former employer, Goldman Sachs. Both sides presented their final arguments in a hearing to determine whether a preliminary injunction will be entered against the two men and their firm, preventing them from doing business.
Citadel contends that Malyshev and Kohlmeier set up Teza just six weeks after leaving Citadel, and have accused the men of “industrial espionage.” Teza argues that, since it was not actually trading, it wasn’t competing with Citadel.