Manhattan Court Allows Citadel’s Trade-Secret Lawsuit Against Crypto Startup Portofino to Move Forward

Manhattan Court Allows Citadel’s Trade-Secret Lawsuit Against Crypto Startup Portofino to Move Forward

The U.S. District Court in Manhattan has ruled that Citadel Securities’ lawsuit, alleging that crypto-trading startup Portofino misappropriated its trade secrets, will largely proceed.

According to an Oct. 30 court filing, the Manhattan District Court allowed Citadel’s lawsuit to move forward against Portofino, which was founded by two former Citadel Securities employees accused of using Citadel’s trade secrets to establish their venture. Although the judge denied parts of Portofino’s motion to dismiss, he also limited Citadel Securities’ claims regarding alleged breaches of employment contracts involving three Citadel employees Portofino attempted to recruit.

Citadel Securities had previously argued that Portofino’s recruitment of its systematic options trader, Taym Moustapha, violated his employment contract and that it had to pay significantly higher compensation to another employee to counter an offer from Portofino. However, the judge dismissed Citadel’s claims related to Moustapha and two unnamed employees. He also granted Citadel a 30-day period to amend and resubmit its complaint with further details.

Another aspect of Citadel’s case involving a separate employee, however, was permitted to continue. Yet, on Oct. 31, the court dismissed Citadel’s claim involving a seed investor, determining that jurisdictional requirements were not met. Judge Gregory Woods ruled that the court had no jurisdiction over Jean Canzoneri, a French investor, as Citadel failed to demonstrate that Canzoneri should have anticipated legal consequences in New York. Woods highlighted that Canzoneri’s investment in Portofino predated the company’s founding and any alleged trade-secret misappropriations.

Canzoneri, defending against Citadel’s accusations, argued that an investor’s knowledge of a startup’s founders’ prior employment does not equate to participating in trade-secret theft. He contended that his role as an investor could not reasonably imply abetting any alleged theft.

Citadel originally filed the lawsuit in May 2023 against former employees Leonard Lancia and Alex Casimo, alleging that they took proprietary information to launch Portofino, a crypto-focused market-making firm. In response, Portofino filed a motion to dismiss the case, arguing that Citadel’s lawsuit was intended to intimidate former employees and discourage others from leaving the company. Portofino has consistently denied Citadel’s accusations, asserting that the claims amount to general business practices found in any high-frequency trading (HFT) enterprise.

“All Citadel Securities claims to have are vague categories like ‘research,’ ‘trading strategies,’ ‘simulations,’ and ‘business plans,’ which broadly apply to any HFT business,” Portofino said, as quoted by Bloomberg.