Chicago Court Hands Out Harsh Sentences For Hedge Fund Trade Secret Theft

United States of America v. Yihao Pu et al., Case No. 1:11-cr-00699 (N.D. Ill.)

Following earlier plea agreements, "Ben" Pu 1 ("Pu") and Sahil "Sonny" Uppal ("Uppal") were sentenced today for stealing trade secrets related to high-frequency trading platforms from Chicago-based hedge fund Citadel. In what could be compared to a James Bond espionage thriller, through the use of personal storage devices and secret shadow computers,2 Citadel's alpha data and term data were systematically looted from its servers. The high-stakes gamble ended badly for Pu and Uppal.

High-frequency trading ("HFT"), the practice of utilizing high-speed fiber optic connections and computer algorithms to make securities and commodities trades in fractions of a second, has been the focus of the Department of Justice, the Securities and Exchange Commission, and the Commodity Futures Trading Commission. Through the use of mathematical and statistical modeling, relationships among alternative investment instruments and market activities are translated into complex algorithms and ultimately proprietary computer source code for HFT programs. Once the programs are deployed, they automatically execute trades that can move hundreds of millions of dollars in fractions of a second. Administrative investigations related to the perceived unfairness of HFT activities are ongoing in the financial industry and a priority among regulators.3

Pu and Uppal aimed to defraud their first employer, referred to in the indictment as "Company A," and Citadel of their trade secrets and other confidential information. For some time, they were able to successfully hide the fact that they had taken confidential source code and other proprietary tools from Company A. Citadel, however, maintained a robust internal security protocol. Pu and Uppal's illegal activities raised internal red flags at Citadel and the illegal scheme was quickly discovered.

Once Citadel's investigation was handed over to federal prosecutors, Pu and Uppal were aggressively pursued. Each defendant was charged with a slew of counts relating to criminal trade secret theft. Pu was charged with: 11 counts of wire fraud (18 U.S.C. § 1343), 10 counts of theft of trade secrets in violation of the Economic Espionage Act of 1996 (18 U.S.C. § 1832),4 three counts of unauthorized computer access (18 U.S.C. § 1030), and two counts of obstruction of justice (18 U.S.C. § 1519). Uppal was charged with six counts of wire fraud (18 U.S.C. §...