KCG Holdings Code Theft Said to Be Probed by Manhattan DA

An alleged theft of computer code from KCG Holdings Inc. (KCG), a firm that specializes in high-frequency trading, is under investigation by New York prosecutors, a person familiar with the matter said.

Manhattan District Attorney Cyrus R. Vance Jr. is looking into allegations made by lawyers for the New Jersey-based automated market maker, said the person, who requested anonymity because the matter is private.

Vance’s office has brought similar cases for theft of proprietary information in recent years. In February, employees of Two Sigma Investments LLC, an $18 billion quantitative hedge fund, were charged in a similar case. Two Sigma alleged in a lawsuit against one of the men that he quit after the fund learned he had “misappropriated confidential information as part of an apparent plan to take that information to a new employer.”

KCG was previously known as Getco LLC, before transforming itself last year by purchasing broker-dealer Knight Capital Group Inc.

Founded by former Chicago Mercantile Exchange and Chicago Board Options Exchange traders named Stephen Schuler and Dan Tierney, Getco had developed a reputation over the past decade as one of the most cutting edge and formidable high-frequency trading firms. The heart of any firm such as Getco is its computer code that automatically buys and sells stocks, futures and other products.

Flow Traders

Last year, Vance charged three employees of Flow Traders for allegedly stealing that firm’s electronic trading software by e-mailing it to themselves.

And in 2012, Sergey Aleynikov, a former Goldman Sachs Group Inc. (GS) programmer, was charged by Vance’s office with stealing proprietary software code from that firm.

Aleynikov had been convicted in federal court of stealing proprietary software code from Goldman Sachs. He was freed from federal prison in New Jersey in 2012 after an appeals court overturned his conviction. Vance charged him under New York law over the same alleged conduct six months later.

All of the men have pleaded not guilty. Vance’s office declined to comment on the matter.

“KCG is committed to safeguarding the integrity of the firm’s intellectual property and cooperates fully with criminal and regulatory authorities,” Sophie Sohn, a spokeswoman for the firm, said yesterday in an e-mailed statement, declining to comment further.

The probe was reported earlier by the Wall Street Journal.

To contact the reporter on this story: Tiffany Kary in New York at tkary@bloomberg.net

To contact the editors responsible for this story: Andrew Dunn at adunn8@bloomberg.net David E. Rovella, Michael Hytha

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