Thursday, July 30, 2009
The hazards of believing in invincibility
At what point does a man's success go to his head? What does it take to go from being an overachiever to thinking you are invincible? Well here is a guy that has reached that point. His name is Mikhail Malyshev. He achieves tremendous success in quantitative trading at the $11 billion hedge fund, Citadel. He is the star who makes money at Citadel when the rest of the fund is down 50+% and has to put up gates to halt redemptions (at the end of 08). He makes a sick amount of money for himself - but clearly that's not enough.
As Citadel starts marketing their quant fund as a stand-alone strategy (as opposed to their main multi-strat fund) with their star trader - Malyshev, he figures he can raise the money himself, without Citadel. He leaves Citadel with the usual 9-12 months non-compete that Citadel always imposes. All he has to do is wait until his little non-compete vacation is over to collect a really nice sum of money from Citadel, and he is free to go do whatever he wants. Take a trip around the world, enjoy your vacation.
But no, that's not good enough for Malyshev. He has to be in the game, he has to make his first billion. He's better than other traders from Citadel who have to wait (like the fundamental credit trader Joe Russell, who is taking his time after leaving almost 12 months ago). Screw Ken Griffin, Citatel, their army of lawyers, and their noncompete. Malyshev quietly launches his own firm called Teza Technologies. He figures he's so smart, he can do it behind Citadel's back and bring with him the software he developed at Citadel. But that's not good enough. He goes out and hires another quant trading guy, Sergey Aleynikov from Goldman. But that's not good enough either. Aleynikov brings Goldman's software algorithms with him.
So Goldman and the FBI go after Aleynikov and Teza for software theft. Citadel finds out about Teza from the news and sues Malyshev for violation of the non-compete and - you guessed it - taking Citadel's proprietary software. For those who don't know Citadel, they are notoriously litigious and will extract blood from Malyshev. His business is over, his star employee was arrested for theft by the FBI, and his personal assets may soon become the property of Ken Griffin. You can't make this stuff up! What a wonderful lesson on the hazards of believing in your own invincibility.