Shortly after we reported the latest market-rigging scandal, in which ITG was busted for frontrunning sellside clients in its dark pool in what has been since dubbed a "trading experiment" (because it sounds better than criminal conspiracy to defraud clients), and which will cost the company a record for a private Wall Street firm $22 million settlement, we had one question for AQR's Cliff Asness yesterday morning:
Hi @Cimmerian999, is Hitesh Mittal the AQR employee who was formerly at ITG and is part of the SEC settlement?— zerohedge (@zerohedge) July 30, 2015
Here is a quick bio of Hitesh from FX Week:
Hitesh is the head of AQR's Global Trading Strategies group, running the firm's trading desk and overseeing the group that builds automated trading models and does transaction cost analysis for equities, futures and FX globally. Prior to AQR, he was the global head of liquidity management at Investment Technology Group, where he built its algorithmic trading platform and managed its crossing network, POSIT. He has published several papers on market structure, algorithmic trading, dark pools and transaction cost analysis, and is listed as a co-inventor on three patents. Hitesh earned a B.Eng. in computer science and engineering from JNV University in Jodhpur, India, and an M.B.A. from New York University.
We got no answer from the AQR head, who we assumes failed to noticed our inquiry, despite his notorious chattiness on Twitter where he regularly enjoys berating and mocking HFT critics.
Luckily, Bloomberg noticed, and as it turns out the answer to our question was a resounding yes.
As a reminder, the SEC accused ITG of two gross violations:
The investigation is focused on customer disclosures, Form ATS regulatory filings and customer information controls relating to the pilot’s trading activity, which included (a) crossing against sell-side clients in POSIT and (b) violations of ITG policy and procedures by a former employee. These violations principally involved information breaches for a period of several months in 2010 regarding sell-side parent orders flowing into ITG’s algorithms and executions by all customers in non-POSIT markets that were not otherwise available to ITG clients.
As ITG CEO Bob Gasser noted, "The problematic behavior was led by a senior employee who operated in a manner that violated ITG policy, Gasser said Thursday, without identifying the former worker."
In short, the "former employee" was frontrunning external orders in ITG's own prop-trading dark pool/HFT pod.
Previously, ITG Chief Executive Officer Bob Gasser made several references Thursday to a former employee he didn’t identify who was purportedly involved in the case. While apologizing during the conference call with analysts, the CEO highlighted the actions of the former employee, who Gasser said was “ultimately severed from the company.”
That former employee is precisely the Hitesh Mittal we inquired about: it turns out he quietly quit ITG by July in what Traders Magazine article reported then was a "cost-cutting measure." It now appears that he had merely been busted for engaging in what the SEC now confirms was illegal activity (and if ITG was hiding his criminal behavior it would explain why Kevin O'Hara, a former SEC enforcer, demonstratively quit the ITG board the same day).
But it's not what he did there that is notable. It's where he went after - the place: the world's 4th biggest hedge fund, AQR Capital with $136 billion in AUM, run by the outspoken Cliff Asness, who just happens to be one of the biggest supporters of HFT there is.
Hitesh Mittal, the head of trading at AQR Capital Management, is voluntarily taking a leave of absence amid a regulatory investigation of his former employer, Investment Technology Group Inc.... Although ITG didn’t identify anyone involved by name, Mittal is a key figure in that inquiry, according to two people familiar with the matter, who asked not to be named because the investigation is private.
AQR was quick to distance itself from Mittal's allegedly criminal client frontrunning while at ITG:
“This investigation relates to alleged misconduct that occurred in 2010 and 2011 while Mr. Mittal was employed at his former employer, ITG,” according to a statement from Edelman’s Mike Geller, a spokesman for AQR, which oversees about $136 billion of assets. “Mr. Mittal subsequently joined AQR in 2012 and we had no knowledge of the issues in question. Mr. Mittal is taking a temporary paid leave from AQR while the firm diligently reviews the issues.”
Great job on the background check there guys. And while AQR will surely deny, deny, deny it knew anything about Mittal's prior trading record, and will certainly deny he was hired to implement a comparable strategy at AQR, he will no longer be in charge of trading over $100 billion in assets, most likely permanently:
During Mittal’s leave, AQR principal Brian Hurst “will assume the management of the firm’s trading operations,” Geller said. “AQR has an exceptional trading team with a deep bench of talent.” Mittal didn’t respond to requests for comment.
And lest anyone gets the impression we are talking some tiny boiler room whose "principals" spend their time on CNBC every day instead of actually managing money, as a reminder, this is where AQR falls among the world's largest hedge funds according to the latest Institutional Investor AUM ranking: at #4!
So was the world's 4th largest hedge fund using an alleged frontrunning criminal as its head trader for 3 years? We won't know until the SEC investigation is complete. That said, rereading Cliff Asness's Op-Ed "Why I Love High-Speed Trading", with all of this latest information certainly leads us to believe that he may not have listed all the reasons why he loves HFT.
What we do know, is that AQR Capital will want to update Item 11 "Disclosure Information" of its Form ADV in the coming days.