A former futures trader at an unnamed trading firm in Chicago was indicted on federal charges for allegedly stealing trade secrets from the firm, including computer code for electronic trading and strategies and other intellectual property. The defendant, DAVID JACOB NEWMAN, was charged with three counts of theft of trade secrets in an indictment returned by a federal grand jury yesterday and made public today.
Newman, 32, of Chicago, began working at the trading firm as a clerk in 2004 and later as a trader until he left in March of this year, less than a week after he collected his 2013 bonus. Newman will be ordered to appear for arraignment on a date to be determined in U.S. District Court in Chicago.
According to the indictment, the trading firm’s trade secrets included custom-made software for pricing financial products, communicating and executing trades on public exchanges, and analyzing trading risk. They also included trading algorithms, trading profit and loss analysis, and the firm’s options modeling system. Most of the computer code the firm used for trading was custom-made by its employees or consultants, and the firm invested considerable time and money in developing its computer code and intellectual property. In 2011, Newman signed a document acknowledging that he understood the firm’s policies regarding protection of its trade secrets and proprietary information, and at no time was he authorized to copy or possess the firm’s trade secrets.
On Oct. 31, 2013, Newman allegedly accessed and copied computer files from a firm directory, containing trading algorithms, strategies, and analysis, onto a personal thumb drive. On Nov. 5, 2013, Newman accessed and copied additional files containing such information from four firm directories used by four specific traders onto a personal thumb drive, the indictment alleges. A week later, Newman established NTF LLC and was the sole owner and only member of the limited liability company.
On Feb. 24 of this year, Newman allegedly accessed and copied more than 400,000 computer files from the trading firm’s source code repositories onto a personal thumb drive. Three days later, Newman signed an agreement with the CME Group to allow NTF LLC to establish its own interface with CME online trading platforms.
A day after Newman resigned from the trading firm in March, he established an account enabling NTF LLC to trade speculatively in the futures markets, the indictment states.
Each count of theft of trade secrets carries a maximum penalty of 10 years in prison and a $250,000 million fine. If convicted, restitution is mandatory and the court must impose a reasonable sentence under federal statutes and the advisory United States Sentencing Guidelines.
The indictment was announced by Zachary T. Fardon, United States Attorney for the Northern District of Illinois, and Robert J. Holley, Special Agent-in-Charge of the Chicago Office of the Federal Bureau of Investigation.
The government is being represented by Assistant U.S. Attorney Clifford C. Histed, deputy chief of the Securities and Commodities Fraud Section of the U.S. Attorney’s Office.
The public is reminded that an indictment contains only charges and is not evidence of guilt. The defendant is presumed innocent and is entitled to a fair trial at which the government has the burden of proving guilt beyond a reasonable doubt.
To see the official press release, click here.