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

According to a court filing on October 30, the Manhattan District court has agreed to proceed with Citadel’s lawsuit against crypto-trading startup Portofino. This startup was created by two former Citadel Securities employees who are accused of stealing trade secrets to form the company.

The judge denied in part Portofino’s motion to dismiss the case. However, he also denied Citadel Securities’ claims that Portofino breached the employment contracts of three Citadel Securities workers it tried to recruit.

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

The judge dismissed Citadel Securities’ claims regarding Moustapha and two unidentified employees but gave the firm leave to file an amended complaint to address the gaps pointed out by the court during the conference. The court has given Citadel Securities a maximum of 30 days to refile its complaint. Meanwhile, another claim involving a different employee was allowed to proceed.

On October 31, the court granted Portofino’s request to dismiss Citadel’s case involving a seed investor.

“Because Plaintiffs have not shown that Defendant expected or should have reasonably expected that his investment in Portofino would have consequences in New York,”

wrote US District Judge Gregory Woods.

Woods further explained that the court lacked jurisdiction over the seed investor, a French citizen named Jean Canzoneri. The judge noted that Canzoneri’s alleged investment pre-dated Portofino’s founding and any alleged stealing of trade secrets. Canzoneri argued 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.

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 case that same year, stating that the suit was meant to intimidate the two former employees and to deter other current employees from doing the same. Portofino has remained firm in denying Citadel Securities’ trade-secrets theft allegations.

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

stated Portofino.

Key Points:

  • The U.S. District Court in Manhattan has ruled that Citadel Securities’ lawsuit against Portofino can largely proceed.
  • The court dismissed some claims but allowed Citadel Securities to file an amended complaint.
  • Portofino’s motion to dismiss the case involving a seed investor was granted due to lack of jurisdiction.
  • Portofino denies all allegations of trade-secrets theft.

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