As a result of a New York Supreme Court judge’s ruling, the fate of three former UBS employees accused of taking algorithmic code could rest with an industry regulator.
New York State Supreme Court Judge Barbara R. Kapnick on Thursday ordered a hearing before the Financial Industry Regulatory Authority to determine if UBS is entitled to a permanent injunction against three former employees in its algorithmic group, Jatin Suryawanshi, Partha Sarkar and Sanjay Girdhar.
UBS in March filed suit against Suryawanshi, Sarkar and Girdhar after the three moved to Jefferies & Co. earlier this year. In the firm’s complaint, UBS charged the three with misappropriation of trade secrets and a laundry list of other offenses.
Lance Gotko, an attorney with the law firm Friedman Kaplan Seiler & Adelman, who represents the defendants, denies the charges. UBS, its attorneys and Jefferies have all said they would not comment while the lawsuit was pending.
UBS seeks a permanent injunction to prevent Suryawanshi, Sarkar and Girdhar from using any of the algorithmic code they’re accused of taking to benefit their new employer, Jefferies.
Without any admission of wrongdoing, Suryawanshi, Sarkar and Girdhar were willing to have a preliminary injunction entered against them in order to expedite court proceedings, Gotko said. The preliminary injunction will function similarly to the temporary restraining order under which the defendants were placed back in March, Gotko said, and which the three agreed recently to extend.
The temporary restraining order prevents the defendants from using at Jefferies any of the UBS code they’ve been accused of taking. As they deny taking the code, their attorney said, this isn’t an issue for them.
"The court basically will forbid my clients from using any confidential or proprietary information of UBS, including any source code," Gotko said, "which is fine with my clients, because they have not used any such information, nor do they want to."
The FINRA hearing is scheduled for Aug. 20, Gotko said. The court also scheduled a subsequent conference on Sept. 8, to discuss the results of the FINRA hearing, he added.
"The hearing scheduled for Aug. 20 is to decide on the merits, up or down, whether UBS is entitled to a permanent injunction against my clients," he said.
Letting FINRA arbitrate is proper and common procedure in a case such as this, according to an attorney who agreed to speak on background who represents broker-dealers and investment advisers in cases related to regulatory enforcement investigations and proceedings. The two parties will likely go to court if, subsequent to the arbitration, one of them requires some kind of monetary, property-related or injunctive relief.
UBS sued Suryawanshi, Sarkar and Girdhar, for misappropriation of trade secrets, breach of contract, breach of fiduciary duty, unfair competition and other wrongdoing.
Specifically, the UBS complaint alleges that Sarkar copied 25,000 lines of physical source code from UBS–roughly equal to one algorithm, or sections of several, according to sources. Sarkar allegedly emailed the code to his personal email account to develop or reproduce for later use, the complaint said. Suryawanshi, the complaint alleges, attempted to hide Sarkar’s actions by deleting internet history files from his own UBS computer.
