Jane Street’s India Profits Complicate Fight With Millennium
The profit dispute raises the possibility that Jane Street, one of Wall Street’s most secretive firms, may wind up revealing more about its finances in court than it has elsewhere.
Jane Street Group’s soaring profits have emerged as a focal point in its legal battle with two ex-traders and Millennium Management over their alleged theft of a secret billion-dollar India options trading strategy.
In April, Jane Street accused Millennium and former traders Doug Schadewald and Daniel Spottiswood of stealing the “immensely valuable” strategy, causing it significant losses. But lawyers for the defendants said in a previously sealed motion released Monday in redacted form that Jane Street’s India options team actually posted record results in the months after the traders left to join Izzy Englander’s hedge fund group.
US District Judge Paul Engelmayer in New York on Wednesday ordered Jane Street to set out in detail by Oct. 29 how it plans to calculate its claim of lost profit damages. Millennium and the two ex-traders had argued that Jane Street should be forced to reveal how it calculates its profit and loss, including identifying which trading strategies produced which results.
The profit dispute raises the possibility that Jane Street, one of Wall Street’s most secretive firms, may wind up revealing more about its finances in court than it has elsewhere. Millennium and the two traders cited profit-and-loss statements disclosed by Jane Street in the litigation to describe how its India options team hit a hot streak almost as soon as the suit was filed.
Best Month Ever
Schadewald, Spottiswood and Millennium deny stealing any trade secrets. The two traders have claimed credit for building the India options business at Jane Street but said their trading was based on experience and expertise rather than “algorithms or automated signals.” According to the defendants, Jane Street’s lack of economic harm further undermines a “frivolous” suit mainly intended to intimidate other employees from leaving.
Spokesmen for Jane Street and Millennium both declined to comment.
Jane Street claimed in its suit that its profits from using the strategy dropped by 50% in March, which it said could only have been explained by a major competitor using the same strategy.
But the defendants said Jane Street’s profit-and-loss statements, which remain under seal, show that April was its best month ever for India options trading, and that pace continued for the next two months.
“April through June have been more profitable than any other three-month period in Jane Street’s history in this market,” Millennium, Schadewald and Spottiswood said. They also cited a heavily redacted email by a Jane Street executive in which he allegedly acknowledged that concern about falling profits could be a “false alarm” stemming from “paranoia.”
‘Additional Profits’
Figures were redacted in the defense filing, but Jane Street has told the court that the strategy at issue generated $1 billion in profits last year.
Jane Street has argued that it could still claim lost profits even if its India options trading continued to be profitable.
“Such damages account for any additional profits that Jane Street would have made but for defendants’ misappropriation,” a lawyer for the firm wrote in a Sept. 13 letter filed in Manhattan federal court that was also released Monday in redacted form.
The account offered by Millennium, Schadewald and Spottiswood largely lines up with Jane Street’s broader financial picture. Citing people familiar with the matter, Bloomberg reported last month that the firm was on track for a record 2024 with first-half net trading revenue of $8.4 billion, a 78% increase from the same period last year. First-half adjusted earnings nearly doubled to around $6.1 billion.
In an update to investors earlier this year, Jane Street said its recent growth was driven by continued elevated equity and options volume as well as strong inflows into exchange-traded funds.
Expert Analysis
Jane Street said in its September letter that the defendants’ demand that it break down its profits on a “trade-secret-by-trade-secret level” was unwarranted and premature at this stage of the case. It said its claim that “but for” their actions its profits would have been even higher would require expert analysis, including of Millennium’s trading data.
Engelmayer on Wednesday said he agreed that Jane Street could not commit to specific final damages figures right now. But he directed the firm to periodically provide interim good-faith estimates of its damages based on the best information available to it, including setting out the bases for those estimates.
The firm pointed to a drop in profits when it argued in April for a restraining order against Schadewald and Spottiswood using the strategy at Millennium. Engelmayer denied Jane Street’s request at the time but said the firm could be compensated with damages if it was found to have suffered any harm.
Many of the court filings in the case are sealed or redacted because of the alleged trade secret at its heart. The fact that the strategy involved India options trading was inadvertently revealed in a court hearing soon after the case was filed.
No trial date has yet been set, but discovery in the case is set to wrap in March, with a pre-trial conference set for April 9.
The India options market has exploded in size in the last five years, garnering interest from players like Citadel Securities and Jump Trading along with Jane Street and Millennium. The country’s securities regulator last week introduced a set of measures aimed at shielding retail investors who are also participating in the market and often losing large sums.
The case is Jane Street Group LLC v Millennium Management LLC, 24 cv 02783, US District Court, Southern District of New York (Manhattan).
