On July 9th 2009, another legal shoe dropped in the case of Sergey Aleynikov and his would be new employer Teza Technologies. Ken Griffin's Citadel Investment Group is now suing its former head of high-frequency trading Misha Malysev and two other former employees, Jace Kohlmeier and Matthew Hinerfeld, alleging that their formation of a new trading firm violated a non-compete agreement they had with Citadel.

As The Wall Street Journal reports, "The identity of Malyshev's new firm, Teza Technologies LLC, became very public this week, when it said it hired and subsequently suspended former Goldman Sachs computer programmer Sergey Aleynikov. Aleynikov has been charged by the U.S. with stealing computer code from Goldman's high-frequency trading business. Aleynikov and his lawyer have asserted that any violation was unintentional, and that he didn't distribute any codes obtained from Goldman."

The Citadel complaint was filed in the Chancery Division of Cook County, Illinois Circuit Court. The complaint asks the court for an expedited hearing in the case, saying that Teza could cause "irreparable" harm to Citadel. It also mentions the Aleynikov affair, stating, "Teza's decision to hire Aleynikov, an accused software thief, creates a substantial risk that they have stolen, or may be planning to steal, Citadel's proprietary code."

As part of the complaint, Citadel attached copies of the non-compete agreements and resignation acceptance letters of the former employees. Malyshev's agreement states that for nine months following his February 2009 departure, he cannot start working for a "competitive enterprise" or use "quantitative analytics which are based on information that is proprietary to Citadel and which I either utilized or developed when I was employed by Citadel." The WSJ notes that Citadel's non-compete agreements are widely considered to be among the more stringent in the hedge-fund business.

According to Reuters (as published in The Moscow Times), Misha Malysev is a brilliant mind who easily navigates the most theoretical areas of mathematics but can discuss finance in terms that laymen can understand. “He was one of our very best students,” said Nathaniel Fisch, director of the Program in Plasma Physics at Princeton University who supervised Malyshev’s doctoral thesis in 1998. “He had something extra, partly his ambitiousness and persistence and partly his flair. And he has street smarts.” Shortly after leaving the Ivy League school with a doctorate in astrophysics, Malyshev abandoned science for business, accepting a position at McKinsey, a consulting firm often hired by governments, large companies and investors.

In 2003, Malysev was hired for the quantitative trading group of Chicago-based Citadel, one of the world’s most aggressive hedge fund firms. Three former colleagues, who declined to be identified for the Reuter's article, remember a different side of Malyshev, calling him an imposing man who kept to himself as others socialized. They remember his appearance as disheveled in a world where his colleagues wore shirts with cuff links and crisply pressed slacks.

By a number of accounts, Malyshev’s career was in high gear at Citadel’s quantitative group, which posted a roughly 40 percent gain last year even as the firm’s billionaire founder Kenneth Griffin’s flagship funds were off about 50 percent. As a senior executive, Malyshev helped oversee roughly $1 billion in assets in the business unit run by James Yeh. By early 2009, though, the relationship between Citadel and Malyshev crested, and in February 2009, he left.

Although Aleynikov does not have the same U.S. educational pedigree as Teza’s Ivy League-educated partners Malyshev, Jace Kohlmeier and Matthew Hinerfeld, he studied at the elite Moscow Institute of Transportation Engineering. But he left before earning a degree. Aleynikov, who is married with three children, found a niche in computer programming as a teenager in Moscow, where he worked as an application programmer at the Railroad Consolidated Computer Center, according to his profile on networking site LinkedIn.com. “He was really a good student,” said fellow student Ayrat Baykov, who is now a software developer in Michigan. The two have not spoken in about two decades, but Baykov recalled Aleynikov’s quiet yet inviting personality and sense of humor.

Aleynikov, who has dual citizenship in the United States and Russia, used contacts he met on the Internet to help him unravel complicated coding problems, posting messages with other programmers in online forums. He refined his computer skills over two decades, first working with hospitals and universities, and later with IDT Corp before moving to Goldman Sachs in 2007.

Apparently Aleynikov was recruited to join Teza Technologies LLC by an outside headhunter. It is not at all clear though what communication between Aleynikov and Malyshev might have occurred during the former's hiring process. What does intrigue Toomre Capital Markets LLC ("TCM") is what his supposed compensation would be. Supposedly Aleynikov was moving from Goldman Sachs where he was making $400,000 per year to Teza Technologies where his annual compensation was said to be $1.2 million. Normally there also would be a hefty fee that would be paid to the outside recruiter that could be as much as thirty percent of first year compensation. The question TCM wonders about is whether Aleynikov was underpaid at Goldman Sachs or whether he was being over-paid at Teza Technologies? And if he was being over-paid, why was that? Was it just part of the premium of getting someone to move from a well-known and lucrative firm like Goldman Sachs to an unknown start-up? Or was it partly compensation for bringing some of Goldman's proprietary trading code?

Reader comments and thoughts are welcome.