Competitive Brokerage Industry Vulnerable to Trade Secret Theft

Author: Scarinci Hollenbeck, LLC|September 16, 2013

In the highly competitive brokerage industry, proprietary computer code must be closely guarded. Employees are increasingly walking out the door with it and starting their own firms.

Competitive Brokerage Industry Vulnerable to Trade Secret Theft

In the highly competitive brokerage industry, proprietary computer code must be closely guarded. Employees are increasingly walking out the door with it and starting their own firms.

Most recently, two New York men were charged with stealing source code from Flow Traders L.L.C., a high-frequency trading firm in Manhattan. They planned to use the information to establish a competing business, according to criminal complaints filed by the office of Manhattan District Attorney Cyrus Vance.

The court documents allege that former trader Jason Vuu sent trading strategies, valuation algorithms and proprietary code from his work email account to his personal email address. He subsequently shared the information with Simon Lu using file-hosting service Dropbox.

The latest charges follow the high-profile prosecution of Goldman Sachs Group Inc. programmer Sergey Aleynikov, who was also charged with misappropriating proprietary source code. As previously discussed on this Business Law Blog, federal charges were ultimately dismissed after the Second Circuit Court of Appeals ruled that downloading proprietary computer code does not constitute stealing under the National Stolen Property Act, which criminalizes the theft of trade secrets. The state charges are still pending trial.

While there are criminal and civil remedies available in the case of source code misappropriation, the best defense is a strong offense. Given how easily technology can be used to facilitate trade secret theft, New York and New Jersey businesses brokerage firms should have strong intellectual property policies and procedures in place. These include non-disclosure agreements, non-compete agreements, and security protocols.

If you have any questions about the current trade secret theft case or would like to discuss how to better protect your firm, please contact me, Jay Surgent, or the Scarinci Hollenbeck attorney with whom you work.