Jane Street temporarily avoids disclosing trade secrets in legal dispute with former traders and Millennium Management

Key Takeaway

• Jane Street temporarily avoids disclosing trade secrets in a legal dispute with former traders and Millennium Management, pending further court orders.
• Defendants deny wrongdoing and countersue, arguing their Indian options business is based on expertise, not stolen secrets.
• Archegos' ex-CRO Scott Becker to testify against Bill Hwang and Patrick Halligan in a high-profile fraud case, despite defense claims of his credibility issues.

Jane Street Trade Secrets Dispute

Jane Street Group has been temporarily spared from disclosing its trade secrets to former traders Douglas Schadewald and Daniel Spottiswood, as well as Millennium Management, amid an ongoing legal battle. US District Judge Paul Engelmayer ruled on Thursday that Jane Street does not need to share a court-ordered disclosure with the defendants for now. Instead, the firm can make it available only to the court and outside lawyers.

Jane Street had sued Schadewald, Spottiswood, and Millennium last month, alleging that the two traders took an "immensely valuable" confidential trading strategy to their new positions at Millennium. The defendants have denied any wrongdoing, and Judge Engelmayer has expressed skepticism about the claims. Engelmayer has given Jane Street a deadline of May 23 to specify the secrets it claims were stolen. The details of the strategy, which involves options trading in India, were heavily redacted in the original suit.

In a letter to Engelmayer, Jane Street’s lawyer, Deborah Brown, argued that allowing the opposing parties to view its trade secrets would be "devastating" to the firm, given that they are direct competitors. "Mr. Schadewald and Mr. Spottiswood are actively competing with Jane Street by trading in the India market right now," Brown wrote, adding that such disclosure risks further misappropriation.

Millennium and the two traders have countersued, seeking a declaration that no trade secrets were stolen and demanding that Jane Street pay their legal costs. They argue that the Indian options business was built on their experience and expertise rather than any secret algorithms or automated signals. Lawyers for the defendants opposed Jane Street’s request to block them from viewing the disclosure, stating it "serves no legitimate purpose" and impinges on their ability to defend the case.

Judge Engelmayer’s order is temporary, intended to allow the litigation to proceed without delay while he handles another case. He indicated that a more final protective order would likely grant the defendants some access to the alleged trade secrets.

Archegos Collapse Testimony

Scott Becker, the former chief risk officer of Archegos Capital Management, is set to testify against Bill Hwang and Patrick Halligan in a fraud case that has captured significant attention. Becker, who has already pleaded guilty, will serve as a cooperating witness for the prosecution. His testimony is expected to provide an inside look at what prosecutors describe as a sophisticated conspiracy to defraud banks and manipulate markets.

Becker’s involvement in misleading banks has been highlighted through various testimonies. For instance, former UBS Group AG risk manager Bryan Fairbanks testified about a March 10, 2021, call in which Becker claimed that Archegos could liquidate in 30 days if necessary. However, it was later revealed that Archegos had similar positions with other banks, leading to a catastrophic liquidation by the end of March 2021 when margin calls were missed.

Jennifer Miranda, a managing director at Jefferies Financial Group, also testified that Becker reassured her in March 2021 that Archegos had billions in unencumbered cash and could liquidate its positions within a month if necessary. Based on this assurance, Miranda partially approved a $240 million withdrawal request from Archegos. Two days later, Archegos was insolvent, costing Jefferies $40 million.

In his April 2022 guilty plea, Becker admitted to lying to financial institutions about Archegos’ holdings to get them to extend credit or participate in swap transactions. He stated, "I falsely represented to certain financial institutions that Archegos’s largest position was approximately 35% of its net asset value when, in fact, I knew the largest position had grown to a significantly higher percentage than that."

Defense Strategy

The defense is expected to argue that Becker is still lying and is scapegoating others for his own misconduct. Mary Mulligan, Halligan’s lawyer, described Becker as manipulative and "a very, very convincing liar" during her opening statement. Defense lawyers often try to depict cooperators as individuals who are blaming others to mitigate their own culpability.

Evidence of personal rivalries within Archegos could also complicate the prosecution’s depiction of a tight "core" at the firm. Jesse Martz, a former junior member of Archegos’ operations team, testified that Becker did not get along with Halligan and often vented about him. Martz mentioned that Becker had a "personal vendetta" against Halligan, which could be used by the defense to question Becker’s credibility.

Management Quotes

• Deborah Brown, Lawyer for Jane Street:

  "Mr. Schadewald and Mr. Spottiswood are actively competing with Jane Street by trading in the India market right now... If anything, such disclosure only risks further — and perhaps even more efficient — misappropriation."