Citadel’s Trade Secrets Suit Against Portofino Advances

The U.S. District Court in Manhattan has ruled that most of Citadel Securities’ lawsuit against crypto-trading startup Portofino, over alleged trade-secret theft, can move forward. Filed on Oct. 30, the court’s decision allows the bulk of Citadel’s claims to proceed, marking a significant development in the ongoing legal battle between the major financial firm and the startup founded by two of its former employees.

The lawsuit alleges that former Citadel Securities employees Leonard Lancia and Alex Casimo, founders of Portofino, stole Citadel’s proprietary trade secrets to establish their crypto-focused market-making firm. In its filing, Citadel contends that these trade secrets included “confidential research, trading strategies, simulations, and business plans” critical to Citadel’s competitive edge.

Court Decision: Dismissals and Claims Allowed to Proceed

Judge Gregory Woods allowed parts of Citadel’s case to proceed but dismissed several of its claims related to employment contract breaches involving Citadel’s current employees whom Portofino attempted to recruit. Specifically, Citadel claimed that Portofino’s recruitment of systematic options trader Taym Moustapha and two other employees violated their employment agreements. The court dismissed these allegations but granted Citadel Securities 30 days to amend its complaint to address gaps in its arguments.

Additionally, the court dismissed Citadel’s claim against Portofino’s seed investor, French citizen Jean Canzoneri. Judge Woods ruled that the court lacked jurisdiction over Canzoneri, whose investment in Portofino occurred before its official founding and any alleged theft of trade secrets. In his defense, Canzoneri argued that investing in a startup led by former employees of another company does not imply knowledge of trade-secret theft.

Portofino’s Response to Citadel’s Allegations

Portofino, which has denied Citadel’s allegations from the start, filed a motion to dismiss the case, claiming that Citadel’s lawsuit is a tactic to intimidate and deter its current employees from leaving for competing ventures. In a statement to Bloomberg, Portofino criticized Citadel’s claims as overly broad, arguing that the types of information Citadel describes are common to any high-frequency trading (HFT) business and do not constitute trade secrets.

“All Citadel Securities alleges is that it has confidential ‘research,’ ‘trading strategies,’ ‘simulations,’ and ‘business plans and strategies,’” Portofino stated. “These amorphous categories cover the entirety of any HFT business.”

Looking Ahead: What’s Next in the Legal Battle?

With Judge Woods’ decision, Citadel has 30 days to amend and refile portions of its complaint. The case underscores the ongoing tension between established financial firms and new crypto startups, particularly regarding proprietary information and intellectual property. As the lawsuit progresses, it could set a precedent for similar cases involving trade secrets and employee transitions within the financial sector.