Ex-Two Sigma Analyst Asks N.Y. Court to Toss Theft Case

A former analyst for quantitative hedge fund Two Sigma asked a New York state judge to dismiss charges that he stole the firm’s data, saying that the information isn’t proprietary or is based on common concepts.

Kang Gao, 29, a native of China who lives in Manhattan, was indicted this year on 11 charges, including multiple counts of unlawful use of secret scientific material, unlawful duplication of computer-related material and criminal possession of computer-related material. He pleaded not guilty before State Supreme Court Justice Jill Konviser in March.

Marc Agnifilo, an attorney for Gao, today filed documents asking Konviser to throw out the case. He said the information Gao is accused of taking doesn’t constitute “secret scientific material,” a “computer program” or “computer data.”

“Everything he’s alleged to have sent to himself are essentially handwritten models, mathematically based trading models that he himself has written,” Agnifilo told reporters outside court. “We don’t feel that any of the charges are well-founded.”

Gao is one of the latest to be charged by Manhattan District Attorney Cyrus Vance Jr. with stealing proprietary information from a financial firm. Last year, Vance accused three employees of the Dutch firm Flow Traders with stealing software by e-mailing it to themselves. They have pleaded not guilty.

Case Dismissed

Gao and the defendants in the Flow Traders case are charged with the same crimes as Sergey Aleynikov, the programmer whose federal conviction for stealing proprietary software code from Goldman Sachs Group Inc. was thrown out on appeal. Aleynikov is awaiting trial on state charges brought by Vance’s office. He has also pleaded not guilty.

Two Sigma, which filed a lawsuit against Gao over the alleged theft, uses complex mathematical models to decide when to buy and sell securities.

The New York-based firm was founded in 2001 by David Siegel, a former chief technology officer at Tudor Investment Corp., and John Overdeck, a former managing director at D.E. Shaw & Co. Gao worked as a financial research analyst for the firm from about August 2010 until he resigned in February.

Remote Access

Prosecutors said Gao used a remote access device to view Two Sigma’s confidential trading models and e-mailed documents to his personal account that he wasn’t permitted to view or disseminate, including quantitative trading strategies, trading models, a marketing presentation and a scientific white paper.

Agnifilo said in court papers filed today that the first trading model Gao is accused of taking is unfinished, was written by the defendant, contains no proprietary information, was more than 18 months old and was neither innovative nor recent.

The second trading model is a document written by Gao and a colleague that attempts to measures the percentage of a change in a stock price based on trading, Agnifilo said.

“The model operates on a well-established and widely researched notion in stock trading -- that being that the mere fact that a certain stock is traded is an activity which, in the absence of external factors, impacts the price of a stock,” Agnifilo said. “In short, there is nothing scientific in the premise of this model, nor is the model computer source code or computer data or a computer program.”

Pythagorean Theorem

The “white paper” Gao is accused of taking is a research article regarding an algebra concept called a “Toeplitz matrix” that contains information that can be found in an advanced textbook or hundreds of mathematical journals, Agnifilo said. He said the contents of the article are “no more secret or scientific” than the Pythagorean Theorem.

The marketing presentation was prepared by Gao and a colleague and is an outline of public statistical data about the equity market in China, Agnifilo said. The district attorney is confusing algebra and general trading concepts with computer source code and is seeking to extend findings in the Aleynikov case to Gao’s case, Agnifilo said.

“The mere fact that the defendant allegedly used the computer to access the trading model does not somehow transform the trading model into a computer program or computer data any more than someone accessing the Constitution or Magna Carta by computer would transform those documents into a computer program or computer data,” Agnifilo said.

Gao, who is being held on $500,000 bail, is scheduled to return to court July 1.

The criminal case is People of New York v. Gao, 00640-2014, New York State Supreme Court, New York County (Manhattan).