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Citadel Calls Former Head Of HFT Trading's Current Venture, "A Veritable Pirate Ship Of Illegal Activity"

Tyler Durden's picture




 

A peculiar escalation developing in Chicago (what is it about that city) was today's development in the Citadel - Teza Technologies lawsuit.  As a reminder, Teza is the firm run by former Citadel head of HFT and quantitative trading, Misha Malyshev, who got unmasked when it was made clear that he had recruited Sergey Aleynikov from Goldman, and was preparing to launch a quant trading group despite his non-compete with Citadel (which may very well be the reason for the entire Aleynikov fiasco after all). What was surprising in today's hearing was the proclamation by Citadel lawyers that Teza is a "veritable pirate ship of illegal activity."

Whoa, big words there. And probably not half wrong (which i guess means half right, thus preventing someone from suing us for agreeing or disagreeing with what was said). Big enough, that apprently none other than head honcho Ken Griffin was among those present for today's hearing. And likely big enough, because if anyone should know it is Citadel: after all Malyshev made $1 billion for Citadel last year when the firm was down almost 55% (oh yeah, and all those amazing profits Citadel has had so far? Well, they kinda need 100%+ returns just to get above the high water mark... oops), and was the sole profitable group. Which should also answer some of those question regarding the profitability of High Frequency Trading groups.

Also, another reason why the case has gotten such prominence - the enforcability of non-compete lockups. From Crain's:

The case has also garnered attention because of the small window it has
opened on the secretive, lucrative and fast-growing world of
high-frequency trading.

Citadel's lawyers claim that Teza is a competitive enterprise that has
been recruiting talent, building databases of historical and real-time
market, constructing a super-fast trading engine and developing trading
signals and strategies in an effort to be able to engage in
high-frequency, low-latency trading.

Such trading, theoretically, would allow it to predict the price of a
financial instrument one second in the future and profit from that.

Yet Zero Hedge's focus is mostly drawn on the wonderfully visual illegal activity pirate ship. Just what is it about this pirate ship that the firm's lawyers know? After all, Malyshev, together with Simons, are two of the foremost brains in the field of HFT, which for a while has been getting some peripheral blogger and lately mainstream, attention. Is there something rather big brewing in the quantitative arbitrage and ultra-low latency marketplace? Zero Hedge is procuring the transcripts from the recent depositions by Mr. Aleynikos and Malyshev and will provide these, together with out commentary, to our readers shortly.

h/t Jim Bianco

 

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Fri, 10/09/2009 - 18:08 | 94666 Miles Kendig
Miles Kendig's picture

Takes a pirate to know one.  Looking forward to the follow up reading.

BTW, doesn't Janet Tavakoli call Chicago home?

Fri, 10/09/2009 - 18:51 | 94704 ZerOhead
Fri, 10/09/2009 - 18:52 | 94708 Miles Kendig
Miles Kendig's picture

hahahahahahahahaha bwaaaahaaaa!!!

Thanks for the Friday pick up.

Fri, 10/09/2009 - 23:02 | 95052 glenlloyd
glenlloyd's picture

Argh Matey! Ben be a butt pirate and Barney's Fannie Mae be the answer!

Fri, 10/09/2009 - 18:07 | 94669 Leo Kolivakis
Leo Kolivakis's picture

In the ultra competitive world of "alpha", these "wizards" will end up canabilizing their profits. The pendulum swung too far into the quant side and it will come back to bite them in the ass.

Fri, 10/09/2009 - 18:11 | 94674 Gubbmint Cheese
Gubbmint Cheese's picture

Hmm. Ass biting pirates.. Sounds like the plot to a soft porn movie.

Fri, 10/09/2009 - 18:17 | 94680 buzzsaw99
buzzsaw99's picture

What was surprising in today's hearing was the proclamation by Citadel lawyers that Teza is a "veritable pirate ship of illegal activity."

Better watch out Teza, GS will be jealous. Arrgg!!

Fri, 10/09/2009 - 18:24 | 94686 deadhead
deadhead's picture

Thanks for the update TD.

Speaking of Chicago, I am really curious as to why nothing has developed on the whole Blagoevich (sp) matter....the prosecutor is well known for his aggresiveness yet i've heard nothing.  even though Blago is a fruitcake, his book and his recent appearance on Jon Stewart are interesting in that he keeps insisting, almost in a daring, challenging "i told you so" fashion that once people hear the tapes, they will be shocked (i'm guessing there are some rahm, valerie, etc obama types on there).

He indicated it his killing him not to tell people what is on the tapes but he is under a court order of nondisclosure.  I can't wait to hear the tapes.

 

Fri, 10/09/2009 - 18:46 | 94700 Cognitive Dissonance
Cognitive Dissonance's picture

IMHO, I suspect Blago knows where some bodies are buried, regardless of his actual involvement.

Those type of people are always dangerous to the powers that be, one of whom might have just won a special prize. The fact that no one has taken him out indicates he has some physical evidence that might change hands in the event Blago steps in front of a bus.

Fri, 10/09/2009 - 18:53 | 94706 Miles Kendig
Miles Kendig's picture

Superfly taught me that if you are going to work the powers that be you had better have a good insurance policy.  I took that lesson to heart.

I am Miles Kendig and I will never go back for any amount of money.

Sat, 10/10/2009 - 09:00 | 95236 bonddude
bonddude's picture

Throw Rezko into that group too. I am shocked that he still lives.

The ONLY answer is he has evidence that will be delivered upon his untimely demise.

Fri, 10/09/2009 - 20:29 | 94856 JohnKing
JohnKing's picture

December 8, 2008

Blagojevich threatens to stop the state’s dealings with BoFA.

December 9, 2008

Blagojevich Busted.

 

Fri, 10/09/2009 - 23:15 | 95071 Anonymous
Anonymous's picture

The most curious thing was why the prosecutor pulled the plug on the undercover taping when he did. Why did he stop? Did he stop because he knew if he let it go any further he would be forced to prosecute the incoming administration before they even got sworn?

Knowing all we know now about the current administration's due diligence processes and general street smarts surrounding the vetting process would it be shocking if they had blundered in a monumental fashion back in November-December 2008?

Sat, 10/10/2009 - 08:35 | 95227 Anonymous
Anonymous's picture

Blago was busted too early in order to protect Obama. Obama most certainly would have given Blago everything he (illegally) wanted to get Valarie Jarrett in his seat, and could have easily outbid Jesse Jackson Jr. and all other interested parties (Mayor Daley, Lisa Madigan). So to prevent the Obama adminstration from starting off Janaury 2009 a flurry of with indictments (as is often the case with Chicago politicians***), Fitzgerald shut down Blago before his scheme could get too far.

Problem is they busted Blago too early and now their case against him is very weak. All they have is talk and no action.

Obama is too big to fail and he must be protected at all costs. So instead of letting Blago committ a crime with Obama, they shut down Blago to protect Obama from himself.

*** Since Mayor Daley took off in 1989, 27 Chicago Alderman have been arrested. Most for accepting bribes or cheating on their property taxes. They City Council only has 51 Alderman. Chicago Alderman are arrested in higher percentages than Chicago drug dealers.

America, welcome to Chicago politics, where Obama learned everything he knows.

Fri, 10/09/2009 - 18:32 | 94691 BobPaulson
BobPaulson's picture

Will the increasing complexity and speed of trading eventually be its own demise? What replaces it? Can you turn back the clock? I'm not surprised when the nuts and bolts of trading come down to software that the systems are riddled with holes. Only an Enron type egomaniac can look at these systems and not see the growing vulnerability to security. 

It's like asking the DEA to not be on the take. It won't work unless you make it impossible. When there is $o much to be made, enforcement is futile. The temptation is too great.

 

Fri, 10/09/2009 - 19:16 | 94726 Anonymous
Anonymous's picture

Any banks closed by the FDIC today? Does the FDIC update their list online real-time? Not necessarily in milliseconds, but same day?

Fri, 10/09/2009 - 21:41 | 94969 deadhead
deadhead's picture

not a one today....

they update pretty quick on bank failure friday. 

Fri, 10/09/2009 - 19:28 | 94735 Shylock81611
Shylock81611's picture

The kettle calling the pot "black."

 

This is why Griffin is the most hated man in Chicago.

Fri, 10/09/2009 - 23:04 | 95054 glenlloyd
glenlloyd's picture

no banks failed = FDIC broke

Sat, 10/10/2009 - 00:21 | 95114 JohnKing
JohnKing's picture

Such trading, theoretically, would allow it to predict the price of a financial instrument one second in the future and profit from that.

Front running isn't wizards work but it's nice to have them on staff for window dressing.

Sat, 10/10/2009 - 02:26 | 95165 Hephasteus
Hephasteus's picture

Installation wizard demands the deactivation of all running programs?

http://freakshowplanet.com/fun/freaks/5178-freaks.html

Sat, 10/10/2009 - 07:06 | 95209 Jendrzejczyk
Sat, 10/10/2009 - 08:28 | 95221 Anonymous
Anonymous's picture

Blago was busted too early in order to protect Obama. Obama most certainly would have given Blago everything he (illegally) wanted to get Valarie Jarrett in his seat, and could have easily outbid Jesse Jackson Jr. and all other interested parties (Mayor Daley, Lisa Madigan). So to prevent the Obama adminstration from starting off Janaury 2009 a flurry of with indictments (as is often the case with Chicago politicians***), Fitzgerald shut down Blago before his scheme could get too far.

Problem is they busted Blago too early and now their case against him is very weak. All they have is talk and no action.

Obama is too big to fail and he must be protected at all costs. So instead of letting Blago committ a crime with Obama, they shut down Blago to protect Obama from himself.

*** Since Mayor Daley took off in 1989, 27 Chicago Alderman have been arrested. They City Council only has 51 Alderman. Chicago Alderman are arrested in higher percentages than Chicago drug dealers.

America, welcome to Chicago politics, where Obama learned everything he knows.

Sat, 10/10/2009 - 08:28 | 95222 Anonymous
Anonymous's picture

Blago was busted too early in order to protect Obama. Obama most certainly would have given Blago everything he (illegally) wanted to get Valarie Jarrett in his seat, and could have easily outbid Jesse Jackson Jr. and all other interested parties (Mayor Daley, Lisa Madigan). So to prevent the Obama adminstration from starting off Janaury 2009 a flurry of with indictments (as is often the case with Chicago politicians***), Fitzgerald shut down Blago before his scheme could get too far.

Problem is they busted Blago too early and now their case against him is very weak. All they have is talk and no action.

Obama is too big to fail and he must be protected at all costs. So instead of letting Blago committ a crime with Obama, they shut down Blago to protect Obama from himself.

*** Since Mayor Daley took off in 1989, 27 Chicago Alderman have been arrested. They City Council only has 51 Alderman. Chicago Alderman are arrested in higher percentages than Chicago drug dealers.

America, welcome to Chicago politics, where Obama learned everything he knows.

Sat, 10/10/2009 - 08:32 | 95225 Anonymous
Anonymous's picture

Blago was busted too early in order to protect Obama. Obama most certainly would have given Blago everything he (illegally) wanted to get Valarie Jarrett in his seat, and could have easily outbid Jesse Jackson Jr. and all other interested parties (Mayor Daley, Lisa Madigan). So to prevent the Obama adminstration from starting off Janaury 2009 a flurry of with indictments (as is often the case with Chicago politicians***), Fitzgerald shut down Blago before his scheme could get too far.

Problem is they busted Blago too early and now their case against him is very weak. All they have is talk and no action.

Obama is too big to fail and he must be protected at all costs. So instead of letting Blago committ a crime with Obama, they shut down Blago to protect Obama from himself.

*** Since Mayor Daley took off in 1989, 27 Chicago Alderman have been arrested. Most for accepting bribes or cheating on their property taxes. They City Council only has 51 Alderman. Chicago Alderman are arrested in higher percentages than Chicago drug dealers.

America, welcome to Chicago politics, where Obama learned everything he knows.

Sat, 10/10/2009 - 08:54 | 95235 bonddude
bonddude's picture

Ye better be givin' me the secret algos else yer gonna walk the plank matey !!!

Sat, 10/10/2009 - 12:30 | 95293 Anonymous
Anonymous's picture

Is this true??
..............................

Central Banking: A Blight On Humanity

http://news.goldseek.com/GoldSeek/1255111200.php

Posted Friday, 9 October 2009

By: Rob Kirby

Impeccably reliable sources have informed me that as recently as Sept. 30, 2009 – the last possible day of trade in the Sept. 09 gold futures – a number of well-heeled market participants “bought” substantial tonnage worth of gold futures on the London Bullion Market [LBMA] and immediately told their counterparties they wanted to take instantaneous delivery of the underlying physical bullion.

The unexpected immediate demand for substantial tonnage of gold bullion created utter panic in at least two banks who were counterparties to this trade – J.P. Morgan Chase and Deutsche Bank – because they simply did not posses the gold bullion which they had sold short [an illegal act which in trading parlance is referred to as a “naked short”].

Because these banks did not have the bullion to honor their contracted commitments, one or both of them approached the counterparties and asked if there was any way they could settle this embarrassing matter quietly on a “cash basis” to absolve the banks from fulfilling their physical bullion delivery obligations. The purchasers were not interested in a ‘cash settlement’ and demanded delivery of physical bullion giving these banks 5 business days to resolve the situation. A premium of as much as spot plus 25 % [that would be 1,250 – 1,300 per ounce of gold] was offered to settle this matter in fiat money instead of the embarrassment of a very public “failure to deliver” on the part of the London Bullion Market Association.

Earlier this week, no less than two Central Banks became involved in effecting the physical settlement of this situation. One of these Central Banks was British [that would be the Bank of England] – and reportedly, even they were only capable of providing less than pure, non-compliant gold bars that did not meet good delivery standards stipulated by the LBMA. Like it or not, this is a testament to lack of physical gold available, folks.

To summarize: Banks like J.P. Morgan Chase and Deutsche Bk. - who sold endless amounts of gold futures at prices of 950 – 1025 and then tried to make “side deals” with the folks they sold the futures to – offering them spot + 25 % [let’s say 1,275 per ounce] to settle in fiat – only after their counter parties demanded substantial tonnage of physical gold bullion.

Stunningly, if accurate [and there is absolutely no doubt in my mind that this is not], this means that gold is already in SEVERE backwardation and this fact is being hidden from the public.

Then, to protect the “integrity” of the futures market as a ‘price discovery mechanism’ – Central Banks – aiding and abetting - plunder the sovereign assets of their respective countries to bail out their agents / friends in an attempt to ‘sweep the whole bloody mess under the carpet’

To think that anyone wonders why our financial system and fiat money will soon to be TOAST?

What a disgraceful insult to humanity.

ddd

Sun, 10/11/2009 - 02:58 | 95724 Hephasteus
Hephasteus's picture

That's funny you should say TOAST.

There's a song called Toast from Pol B and Binary Mind. They are not main stream but you can find thier album called Scout Summer Camp on Jamendo. The song has samples of Mr T, cartoon characters, etc.

Douche bag and JP morgan have to set up the IMF and the derivatives based bullshit debt structure or they die. Personally I'd prefer to kill a basket of soliders instead of just one country.

 

Sat, 10/10/2009 - 12:52 | 95299 Michael
Michael's picture

I would like to see a list for all the hiding places of the bad debt and the amount of money in each hiding place.

Sat, 10/10/2009 - 15:58 | 95418 torabora
torabora's picture

If you were privy to such a list, you would either be in on it with the criminals or you wouldn't last long.

Sat, 10/10/2009 - 21:40 | 95604 Careless Whisper
Careless Whisper's picture

Crain's on HFT: "predict the price of a financial instrument one second in the future and profit from that"  Hmmm, hadn't thought of it that way.

Looking forward to reading those depositions ...could be very interesting

Mon, 10/12/2009 - 10:33 | 96446 Anonymous
Anonymous's picture

If they know the price of an instrument 1 second into the future, then they can't trade on that, otherwise it will affect the price, and therefore invalidate the knowledge.

It sort of means they could see what they are about to do, and that's not allowed. They could end up bidding an instrument up to infinity.

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