New York (October 14, 2014, 5:07 PM ET) -- A former analyst for hedge fund
Two Sigma Investments LLC accused of stealing trade secrets lost a bid
Tuesday to escape a criminal trial when a New York judge found the grand
jury's proceedings to be legally sound, but won a reprieve on a hefty bail
that has kept him locked up.
While New York Supreme Court Judge Jill Konviser rebuffed the attempt by
Kang Gao to quash the criminal action against him in the pretrial stage, she
granted his request to cut his $500,000 bail in half.
“This case isn’t precisely what it was billed initially when it was
brought before me,” Judge Konviser said during a hearing in Manhattan.
She said there had been issues raised of organizations in China receiving
Two Sigma’s formulas or trading models, on which her previous ruling on Gao
’s bail was based.
“There’s nothing to that extent in the grand jury minutes, but I will
accept the people’s representation that there was a discussion with someone
over there,” the judge said.
Gao, 29, who has been in jail for eight months since his arrest, is accused
of using a remote-access device to view Two Sigma’s confidential trading
models and emailing this information to his personal email account, lifting
quantitative trading strategies, trading models, a marketing presentation
and a scientific white paper.
The fund bars its employees from taking or disclosing any of its
proprietary computer, scientific and financial market modeling information,
according to the government.
Gao’s attorney, Marc A. Agnifilo of Brafman & Associates, disputes the
notion that his client made off with valuable proprietary information,
saying the alleged intellectual property at issue actually consists of two
now out-of-date trading models that Gao himself developed and an algebraic
paper on how you crunch numbers in a certain matrix based on the work of the
early 20th-century mathematician Otto Toeplitz.
“To keep a guy in jail for the equivalent of a year for essentially taking
his own stuff, the product of his own creation, just seems draconian,”
Agnifilo said.
He said the elephant in the room is that Gao is a Chinese national and that
his contact with his family and others in China has been unfairly used to
justify his detention.
“There’s certain things the Chinese government may or may not do, and I
think it’s bleeding over into this case,” he said.
A spokeswoman for Manhattan District Attorney Cyrus R. Vance declined to
comment.
Previously, prosecutors have said high bail for Gao is appropriate given
his past travel to China, his talk of setting up an investment business
there and evidence that he intends to move back, despite the fact he has
surrendered his passport.
Judge Konviser has also ordered further hearings regarding probable cause
for Gao’s arrest as well as on statements he made to the police.
The ruling is the latest development in a series of high-profile trade
secrets enforcement actions brought by Vance’s office in recent years. Gao'
s case in particular has drawn criticism about whether financial firms were
going to far by pushing for the arrest of workers in trade secrets disputes.
Vance has targeted former Goldman Sachs Group Inc. programmer Sergey
Aleynikov, who served nearly a year in prison on federal charges before the
Second Circuit overturned his conviction, only to be brought up again on
state charges.
In June, a New York state judge threw out physical evidence and statements
Aleynikov made to the FBI in the case accusing him of stealing the bank’s
computer code, finding he had been illegally arrested and his property
improperly seized by prosecutors.
Vance also brought charges last year against former traders for a Flow
Traders BV affiliate and an associate for scheming to steal the Dutch
trading house’s proprietary software and set up their own shop. In July,
another New York judge found those charges to be sufficient to proceed to
trial.
Gao is represented by Marc A. Agnifilo of Brafman & Associates PC.
The government is represented by Assistant District Attorney David Neeman.
The case is New York. v. Kang Gao, case number 00640-2014, in the Supreme
Court of the State of New York, County of New York.