Top-Performing Chinese Quant Fund Co-Founder Indicted in US for Alleged Trade Secret Theft
Rise to Prominence
Xiao Zhang, a 33-year-old Chinese citizen from Shanghai, has been making waves in the financial world with his high-flying quantitative hedge fund, Pinestone Asset Management Co. As the chief investment officer and largest shareholder, Zhang has led the firm to remarkable success, with assets under management more than doubling since February to over 10 billion yuan ($1.4 billion).
Allegations of Theft
However, Zhang’s success has been marred by allegations of theft. A federal grand jury in Boston has indicted him for allegedly stealing trade secrets from an unidentified global investment management firm while he was working for it in 2021. According to the US Attorney’s Office in Massachusetts, Zhang utilized a virtual private network to access his employer’s network from China, circumventing the company’s controls. He then allegedly made copies of his employer’s code, projects, and research, with the intent of establishing his own investment firm in China.
Background
Zhang worked in the research department of Boston-based Arrowstreet Capital from July 2015 to August 2021. His co-founder, Wu Que, also worked at Arrowstreet during the same period. Pinestone was set up in June 2022, and has since become one of the top-performing quant funds in China, focusing on low-frequency trading strategies.
Consequences
If found guilty, Zhang faces a sentence of up to 10 years in prison and a fine of up to $250,000. This is not the first time a Chinese quantitative hedge fund has faced allegations of trade secret theft. Last year, Shanghai Ruitian Investment LLC lost a high-profile lawsuit against a former employee who allegedly infringed on its technology secrets when he joined a larger rival.
Implications
The indictment raises questions about the future of Pinestone, which has been struggling to adapt to wild market swings and tightened regulatory scrutiny. With Zhang facing legal action in the US, it remains to be seen how this will impact the firm’s operations and reputation. One thing is certain, however: the stakes are high, and the outcome will have far-reaching implications for the financial industry.
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