(Bloomberg) -- A former executive at StoneX Group Inc. admitted to stealing trade secrets from his prior employer BTIG LLC, a surprise twist in a bitter battle between the rival brokerage firms.
Evan Pfeuffer, who was a managing director at StoneX Financial, said he and others stole technology including sensitive computer code, software and business ideas from BTIG so that StoneX could set up sophisticated automated trading tools. He was told to do so by StoneX management, both during his recruitment and after the firm hired him, he alleged in an affidavit seen by Bloomberg News.
“Like others, I smuggled code out of BTIG in ways carefully designed to avoid detection by BTIG’s security and compliance monitoring,” Pfeuffer said in the affidavit. “StoneX’s management instructed us to copy code, product designs, and whatever else was needed so that we could avoid the years it would otherwise take to build StoneX’s systems and products from scratch.”
Pfeuffer’s revelation comes amid an ongoing dispute between the two firms. BTIG had sued StoneX for at least $200 million in compensation alleging it pilfered code to build its own market-making business. BTIG claimed that StoneX recruited several of its key traders and software developers, some of whom took the stolen code with them to StoneX under the instruction of senior executives. The lawsuit has since moved to arbitration — a private method of resolving disagreements.
Bitter battles involving accusations of trade secret theft are proliferating, as financial firms increasingly rely on algorithms and technology to gain an edge. Citadel Securities sued a pair of former employees alleging they stole trade secrets last year after they broke off to form a crypto market-making firm — a claim that firm denies. Jane Street Group accused former traders of taking confidential trading strategy to new jobs at Izzy Englander’s Millennium Management, which they also deny.
In the affidavit, Pfeuffer said StoneX’s management encouraged him to enlist additional colleagues from BTIG despite knowing this violated non-compete agreements. At StoneX, Pfeuffer’s team was under “enormous pressure” to use stolen BTIG intellectual property to modernize its lagging technology, after the firm made unrealistic promises to shareholders that it could deliver automated trading systems within a year, Pfeuffer said.
StoneX’s senior executives — including StoneX Financial Chief Executive Officer Charles Lyon, its head of equities Jacob Rappaport, head of equity trading Thomas Moore and managing director Chris Amato — were “intimately involved” in these activities, Pfeuffer alleged in the affidavit, dated Oct. 9 and submitted in the arbitration.
Lawyers representing both StoneX and those executives said in an emailed statement that the affidavit contains misstatements, misrepresentations and speculation. It also contradicts a statement signed by Pfeuffer in 2021 which was filed in a California court as an exhibit in the lawsuit, the lawyers said. In that document, Pfeuffer denied possessing BTIG code and providing it to StoneX.
“We will continue to vigorously defend against BTIG’s baseless allegations against the company and its executives,” the lawyers said.
Pfeuffer was placed on leave by StoneX in January, he said in the affidavit. He no longer works at the firm, according to people familiar with the matter who asked not to be identified discussing private information. Steven Kalar, the lawyer representing Pfeuffer in the matter, declined to comment on the affidavit and declined to give a reason for Pfeuffer’s admission.
Representatives for BTIG also declined to comment.
Aggressive Recruitment
Pfeuffer joined StoneX in early February 2021, days after resigning from BTIG. His appointment followed a months-long recruitment process which involved multiple calls with senior management and the promise of millions of dollars in bonuses, he said in the affidavit.
Pfeuffer said he got a “very aggressive pitch” from Amato, who also previously worked at BTIG. Pfeuffer told Amato that if he jumped ship, he wanted to bring his BTIG partner, Debayan Bhaduri, with him. Pfeuffer said Bhaduri had extensive knowledge of the order-management system StoneX was using — the digital tool that executes and tracks securities orders. Both were unhappy at BTIG at that time over their expected compensation, according to Pfeuffer.
In one instance in December 2020, Pfeuffer and Bhaduri flew to meet StoneX executives including Lyon, Moore and Rappaport in Winter Park, Florida — where it has an office — to discuss moving to the firm and ways to upgrade its systems.
The executives encouraged them to recruit additional BTIG employees, but only after a lull to avoid the appearance of solicitation, according to Pfeuffer. He was promised a $300,000 base salary with a $200,000 bonus during his first year, but was told such incentives could surpass $2 million if the StoneX systems were successful.
Once at StoneX, Pfeuffer said he and colleagues faced deadlines to build new automated trading systems that were “completely unrealistic” without using information from previous employers.
StoneX management made it clear that if staff remembered something from prior employment, they could use it at StoneX. Amato made comments about “coding from memory,” which employees understood to mean cribbing such ideas, Pfeuffer said.
An attorney for Amato declined to comment on pending litigation.
Complaints, Lawsuits
In BTIG’s lawsuit, which it filed against StoneX in November last year, it alleged the firm stole code and poached BTIG executives. In a May filing, StoneX said it would “vigorously defend itself” against the claims. At that time, StoneX also disclosed that the Department of Justice and the Securities and Exchange Commission were investigating the firm for conduct alleged in BTIG’s complaint. Pfeuffer’s affidavit was also submitted as part of that process, according to the people familiar with the matter.
A representative for the SEC said the agency doesn’t comment on investigations or the existence of them. A representative for the Justice Department declined to comment.
In addition to StoneX, BTIG has brought claims against a number of individuals including former BTIG employees Amato and Bhaduri. Its complaints against Amato and Bhaduri, filed in June in Chicago and New York federal courts, claim the individuals were key perpetrators of what it called “one of the greatest financial-industry trade secret frauds in recent history.” The parties agreed to arbitrate before the defendants were due to publicly respond. BTIG has not brought claims against Pfeuffer, according to the people familiar with the matter.
Amato recruited a team of BTIG executives to steal the code, BTIG alleged, while Bhaduri used stolen code to build new automated market-making and trading tools, according to the complaints against them. In his affidavit, Pfeuffer said that Bhaduri discussed the possibility of fleeing the US for India to avoid prosecution.
“Mr. Bhaduri categorically denies ever taking trade secrets from BTIG, and he also categorically denies talking about fleeing to India or expressing concern about being arrested for taking information from BTIG,” David Axelrod, a lawyer for Bhaduri, said in an emailed statement.
‘Perfected’ Method
Pfeuffer said he had “perfected” his method for inconspicuously stealing code while he worked at BTIG, which he had joined in 2015. First, he would manually type out encryption software on BTIG’s code-development servers and use that software to encrypt the code he wanted to remove. The measures made it appear “as meaningless gobbledy-gook,” he said.
He then appended the encrypted code to an “innocent looking” PDF he had saved to BTIG’s servers before ultimately emailing it to his personal Gmail account.
“I realize that what I did was wrong and am very remorseful for my conduct,” he said.
--With assistance from Ava Benny-Morrison, Lydia Beyoud, Nicola M. White and Zeke Faux.
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