Citadel Securities lawsuit proceeds against former employees’ crypto startup

U.S. District Court in Manhattan has ruled that Citadel Securities’ lawsuit accusing crypto trading startup Portofino of stealing the firm’s trade secrets can largely proceed.

A Manhattan District court has agreed to proceed with Citadel’s lawsuit against crypto trading startup Portofino, according to an Oct. 30 court filing. Portofino recruited two former Citadel Securities employees accused of stealing trade secrets to create the venture.

The judge partially denied Portofino’s motion to dismiss the case, but did the same for Citadel Securities’ claims that Portofino violated the employment contracts of three Citadel Securities employees it attempted to hire.

Previously, Citadel Securities alleged that Portofino’s hiring of the firm’s systematic options trader Taym Moustapha violated his employee contract. It was also stated that the firm had to pay “significantly increased compensation” to an unnamed employee to eclipse the offer from Portofino.

The judge dismissed Citadel Securities’ claims regarding Moustapha and two unidentified employees, but granted the firm permission to file an amended complaint to fill gaps pointed out by the court during the conference. The court gave Citadel Securities a maximum of 30 days to re-file its complaint.

Meanwhile, another claim the firm filed against another employee was allowed to proceed.

However, on October 31, the court granted Portofino’s request to dismiss Citadel’s lawsuit against the seed investor.

“Because Plaintiffs have not shown that Defendant expected or reasonably should have expected that its investment in Portofino would produce results in New York,” U.S. District Judge Gregory Woods wrote in the court document.

Woods also explained that the court did not have jurisdiction over the seed investor, a French citizen named Jean Canzoneri. The judge also noted that Canzoneri’s alleged investment predated Portofino’s founding and the allegations of theft of trade secrets.

Canzoneri argued that the case against him should be dismissed because Citadel Securities could not accuse him of aiding and abetting trade secret theft by investing in Portofino.

“Anyone who has invested in a startup who knows the founders’ past business knows that they are stealing trade secrets from their old business,” Canzoneri said.

In May 2023, Citadel Securities filed a lawsuit against former employees Leonard Lancia and Alex Casimo. They were accused of stealing trade secrets and using them to run their own crypto-based market-making firm, Portofino.

In response to the lawsuit, Portofino filed a motion to dismiss the lawsuit that same year, stating that the suit was intended to intimidate two former employees and deter other current employees from doing the same. But Portofino stood firm in denying Citadel Securities’ allegations of trade secret theft.

“Citadel Securities all claims to have confidential ‘research’, ‘trading strategies’, ‘simulations’ and ‘business plans and strategies’. So what? These amorphous categories encompass the entirety of any HFT business,” Portofino said in a report by Bloomberg.