Ex-Citadel Employee Pleads Guilty To Wire Fraud And Theft Of Trade Secrets; Accomplice Left To Fight Trial Alone

4 minute read | August.12.2014

Yihao “Ben” Pu is probably coming to grips with the phrases “crime doesn’t pay…” and “don’t do the crime unless you’re willing to do the time....”  In federal court in Chicago, on Thursday, August 7, 2014, Pu, a former quantitative engineer for Citadel LLC, plead guilty to stealing trade secrets and other private information from an unnamed “Company A” located in Red Bank, New Jersey, and financial firm Citadel, related to their high-frequency trading platforms. (See United States of America v. Yihao Pu et al., Case No. 1:11-cr-00699 (N.D. Ill.))

Company A developed “high-performance technology and computer source code” to support rapid stock trading—known as “high frequency trading” or “HFT.”

Chicago-based Citadel operates an HFT platform known as “Tactical Trading.” A 2013 superseding indictment alleges twenty-three counts of wire fraud (violations of 18 U.S.C. § 1843), unauthorized computer access (violations of 18 U.S.C. § 1030), and trade secret theft (violations of 18 U.S.C. § 1832) against Pu and a fellow ex-Citadel employee—Sahil “Sonny” Uppal.  Pu, 26, faces up to 10 years in prison and $250,000 per count.

Pu’s story begins in July 2009, when he took a job with Company A as a quantitative analyst.  According to the 2013 indictment, Pu was responsible for testing and analyzing Company A’s HFT strategies.  During this time, Pu met Uppal, another Company A employee.  In September 2009, Pu and Uppal allegedly devised a scheme to defraud Company A by, among other things, stealing its source code and other confidential information regarding its HFT strategies in order to start their own fund.  Pu explained his intentions in “electronic communications,” most notably a January 7, 2010 email to Uppal where they discussed “obtaining more data for trading strategies, and their ‘non-work related intentions’ of starting their own ‘fund.’”  Even after Company A’s personnel confronted Pu about his unauthorized access and downloading of source code and confidential information, Pu continued to download Company A’s confidential information onto to personal drives, up until his and Uppal’s departure from Citadel in March 2010.

It was much of the same for Pu and Uppal while at Citadel.  Pu worked as a quantitative engineer in the fund’s high frequency trading unit, where, among other things, he had access to predictive algorithms that track the movement of the securities and commodities incorporated in software that automatically executes the trades.  The 2013 indictment alleges that between March 2010 through August 2011, Pu and Uppal circumvented Citadel’s security measures in order to download and transmit confidential business information to Pu’s personal storage devices and email accounts.  In particular, between July and August 2011, Pu used virtual machines to download Citadel’s proprietary software for evaluating data and building testing models for HFTs.

Citadel, like Company A, detected Pu’s unauthorized access and confronted Pu about his conduct.  Pu allegedly falsely represented that he had only downloaded non-confidential information to his cellular telephone, concealing several hard drives containing Citadel’s proprietary information.  Pu allegedly attempted to dispose of the hard drives by giving the computer to an “Individual A” who disposed of them “near a sanitary canal” not far from Wilmette Harbor, Illinois.

Pu was arrested in October 2011 and released on bond.  Pu’s plea comes less than a month away from the September 2, 2014 trial date.  There is no word whether Uppal will also plead guilty.  Pu’s sentencing is scheduled for November 7, 2014.

Undoubtedly, companies understand precautions are necessary to protect their proprietary and trade secreted information from possible theft.  This case illustrates, however, the difficulty companies still face in safeguarding their trade secrets when confronted with highly-skilled and determined actors.  Company A and Citadel, for example, took several steps to safeguard their confidential and trade secreted information, including: (1) requiring Pu and Uppal to sign employment agreements prohibiting the unauthorized access to source code and trade secrets; (2) employing security mechanisms preventing the unauthorized access; and (3) using technical mechanisms allowing them to detect unauthorized access to their source code and other trade secrets.  Company A and Citadel even went so far as to confront Pu regarding his unauthorized access.  Despite these precautions, Pu was still able to steal the source code and other proprietary information, posing the question of what precautions are ultimately effective.