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Chinese Hedge Fund Manager Indicted by US in Trade Secrets Case

Pedestrians along the Bund across from commercial buildings in Pudong's Lujiazui Financial District in Shanghai, China, on Friday, Sept. 13, 2024. China’s central bank has announced a sweep of support for the economy, as pressure mounts on authorities to unleash stimulus and hit this year’s growth target of around 5%. Photographer: Qilai Shen/Bloomberg (Qilai Shen/Bloomberg)

(Bloomberg) -- A co-founder of high-flying Chinese quantitative hedge fund Pinestone Asset Management Co. has been indicted in the US for alleged theft of trade secrets, according to people with knowledge of the matter.

Xiao Zhang, a 33-year-old Chinese citizen from Shanghai, was indicted by a federal grand jury in Boston for allegedly stealing secrets from an unidentified global investment management firm while he was working for it in 2021, according to a statement dated Oct. 31 from the US Attorney’s Office in Massachusetts. The statement didn’t provide any further details about Zhang’s identity.

Zhang is one of the two founders of Shanghai-based Pinestone, the people said, asking not to be named discussing private matters. He is the chief investment officer and largest shareholder of Pinestone and is working in China, they said, adding he has hired lawyers in the US and China to handle the case. 

Zhang and Pinestone declined to comment. The US doesn’t have an extradition treaty with China. 

Pinestone has been one of the top-performing quant funds in China recently. The two-year-old firm’s assets under management have more than doubled since February to over 10 billion yuan ($1.4 billion), a rare growth story this year in an industry struggling to adapt to wild market swings and tightened regulatory scrutiny. 

The company, which focuses on low-frequency trading strategies, was the best-performing Chinese quant managing more than 10 billion yuan in the first half of this year, with a 10.3% return, according to Shenzhen PaiPaiWang Investment & Management Co., which tracks Chinese hedge funds.

According to the indictment, Zhang allegedly utilized a virtual private network in 2021 to access his employer’s network from China, which “enabled him to circumvent the company’s controls.” He then allegedly made copies of his employer’s code, projects and research, before using the items “with the intent of establishing his own investment firm” in China, the US attorney’s office’s statement added.

Zhang worked in the research department of Boston-based Arrowstreet Capital from July 2015 to August 2021, according to registration data on the website of Asset Management Association of China. Wu Que, co-founder and general manager at Pinestone, worked in the investment department of Arrowstreet from July 2017 to August 2021, the association’s records showed. Pinestone was set up in June 2022.

Phone calls and an email sent to Arrowstreet seeking comment were not answered outside business hours.

Theft of trade secrets carries a sentence of up to 10 years in prison and a fine of up to $250,000, according to the indictment.

Last year, a major Chinese quantitative hedge fund, Shanghai Ruitian Investment LLC, lost a high-profile lawsuit in China against a former employee whom it claimed infringed its technology secrets when he joined a larger rival.

©2024 Bloomberg L.P.