Jane Street Accuses Millennium, Ex-Traders of Strategy Theft

(Bloomberg) -- Jane Street Group sued Millennium Management and two former traders over their alleged theft of a highly confidential and “immensely valuable” proprietary trading strategy.

In a complaint filed Friday in federal court in Manhattan, Jane Street said former traders Douglas Schadewald and Daniel Spottiswood, who resigned earlier this year to join Millennium, had been “intimately involved” in the development of the strategy. According to the suit, they are now using it at Izzy Englander’s hedge fund group in violation of confidentiality agreements.

Trade secrets theft suits have become more common on Wall Street in recent years. But Jane Street said it had never before sued former employees for any reason. The firm, which asked for damages and an order barring Millennium and the traders from using the strategy, said legal action was necessary in this case due to the “severe and immediate harm” it was suffering, including a significant drop in profits.

Jane Street said it spent “years of time and capital” to identify the strategy. According to the suit, Millennium offered Schadewald millions of dollars in above-market compensation “so it could avoid the risk, time, and expense of independently developing its own successful trading strategy” and gain “an enormous windfall at Jane Street’s expense.” 

Millennium declined to comment on the suit.

The description of the strategy is heavily redacted in Jane Street’s complaint. The firm says it stemmed from years of research culminating in a 2023 investigation into market inefficiencies.

“Jane Street identified certain signals and strategies, and methods of analyzing and interpreting those signals, that enabled Jane Street to reliably predict future market activity,” the firm said in its suit. The success of the strategy was “difficult to overstate,” it added.

According to the suit, Schadewald joined Jane Street as a trader in 2018 and was involved in and had access to the firm’s research into proprietary strategies. A summer intern at Jane Street in 2018, Spottiswood worked at the firm full-time as a trader starting in 2020 and had similar access, the suit says. 

During their time at Jane Street, both men allegedly frequently remarked on the the success and counterintuitive nature of the strategy. The firm said it saw evidence weeks after Schadewald left in February that he was using the strategy at Millennium. Jane Street said its profits from using the strategy fell by 50% in March, a drop it said could only be attributable to “the entrance of a competitor using the same strategy.”

Jane Street earned more than $7 billion in net trading revenue in the first nine months of 2023. It recently emerged as the broker of choice for issuers of proposed Bitcoin exchange-traded funds. FTX co-founder Sam Bankman-Fried, who was sentenced to 25 years in prison last month for fraud, was a former Jane Street trader.

Millennium manages more than $62 billion and employs more than 320 trading teams pursuing a variety of strategies tied to equities, fixed income, credit, commodities and quantitative investing. Millennium gained about 10% in 2023, outstripping the single-digit returns of many other multistrategy firms.

The case is Jane Street Group LLC v Millennium Management LLC, 24 cv 02783, US District Court, Southern District of New York (Manhattan).

(Updates with Millennium declining to comment.)

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