The day Allen & Overy shined for its client

| General

The day Allen & Overy shined for its client.

Born in China to a working-class family. Xu arrived to the UK with big dreams.He joined G-Research, an algorithmic trading fund, and associated company owned by De Putron, a sleeper multi-millionaire who operates from the shades of Canary Wharf.

Unhappy with the pay that he was receiving from his employer for the billion-dollar trade strategies he was creating, Xu decided to steal these trading strategies from his employer so he could use them for himself or at a rival company. And he did this in a slick manner…..

He handed in his resignation letter praising the company and left to board for Hong Kong but such abrupt fashion of leaving led to suspicion from his employer and they hired Allen & Overy to deal with the matter.

It didn't take long for Allen and Overy to track down Xu, this time in the lobby of his wife's law office. The spokesman told him that he needed to disclose the whereabouts of his suitcase, documents and any electronic devices in his possession. Xu replied that his only device was the iPhone.

G-Research then reported him to London police, who ransacked his apartment and contacted officials in China. On August 14, Hong Kong police showed up at Xu's wife's apartment to arrest him.

One of the officers found a box of mutton and asked if there were any body parts inside. He was sent to the city prison. When British police demanded his extradition to the UK for criminal charges, he happily agreed to leave.No matter what happens, he thought, I hope it ends soon. In December 2014, he returned to the UK with three police officers in the back row of a commercial flight. After returning to London, Xu was refused bail.

He was detained until June of the following year, when he pleaded guilty to fraud. In his written statement, he admitted to deciphering 55 G-Research trading strategies for personal gain. On July 3, he was sentenced to four years in prison. With parole and leave, he can expect to be released within a year.

“Most of the people who stood in front of me could only dream of the bonus that you will receive for many years to come,” said the judge. Throughout the case, Xu denied that he kept the G-Research code, showed it to anyone, or made copies, except for some handwritten notes that the police found in his apartment. The problem was that his former bosses didn't believe him.

On any given day, algorithms perform approximately 95% of transactions on American exchanges. The shift from humans to machines was a profit opportunity for more experienced banks and hedge funds, but also a headache. With billion-dollar strategies now slipping out of the door in a pocket-sized device, financial firms and legal systems alike have struggled to respond. Several high-profile cases of code theft have been treated inconsistently, with judges and prosecutors disagreeing on what constitutes a digital crime.

Sergei Aleinikov (Sergei Aleinikov), a Goldman Sachs programmer, was accused of downloading thousands of lines of code. During a six-year legal roller coaster tour of the New York City justice system, he convicted, not guilty and convicted again. He served eight years in prison and was released in 2012. In another case, a Chinese man accused of stealing from Two Sigma Investments LP in New York was sentenced to 10 months; since his time is no longer counted, he flew home shortly after being convicted.

In the UK, affected financial companies have another tool they can use to protect their secrets: an ancient quirk of the British legal system called private prosecution. If the state does not do this, this method allows victims of suspected crimes to investigate and prosecute the perpetrators. In theory, anyone who wants to initiate a criminal prosecution can file a private prosecution. They were left behind by the parents of the murdered teenager and a conservative activist who accused the gay media of blasphemy. But it is expensive to make such cases, so this approach is now mainly used by companies and others that cost millions of pounds.

The Department of Justice does not maintain accurate statistics on private trials; Senior UK judges said the numbers have increased recently as government agencies try to tackle more complex fraud and lack of funding. Critics warn that such augmentation risks creating a two-tier justice system that better serves the rich. The attorney general, prosecutors and judges can stop a case if it is false or not in the public interest.

De Putron's companies were given the opportunity to intervene in Xu's case when, at the time of his sentencing, a judge issued an order under the proceeds of crime laws, forcing Xu to discard any confidential information still in his possession and disclose it. to those who showed them. If he had disobeyed, he would have had to spend more time in jail. In an effort to enforce a judge's order, London police investigators pulled Xu out of prison for interrogation in December 2015.

He answered all their questions "without comment."

With the police investigation clearly stalled, G-Research launched a private prosecution to find out who saw the 55 stolen signals and what was stored on computers sent to China. The company hired private detectives, specialist lawyers and computer forensics, collecting enough evidence to bring the case to court.

In July, a year after his conviction and a month before he could expect to be released, Xu was called from HM Wandsworth Prison on charges of violating the prosecution order and returned to his cell. The trial began in December.

Xu was charged with five counts of missing computers and code, as well as not disclosing who knew about the signals and where he kept copies. Although the hedge fund paid the bills of G-Research's lawyers, they appeared before the jury under the rules of private prosecution as representatives of the Crown, the British government. Xu, who first appeared as a witness, denied having copies of G-Research's software. When asked if he showed anyone the signals, which, according to the conservative estimates of the company, still cost about 30 million PS, he replied: “No.

This will mean trouble for them. That would be a problem for me. "

He then offered a series of bizarre explanations for why he was unable to return the devices he sent to China. One of them was given to a relative and subsequently stolen, he said. His parents threw others into the Yangtze River. When she explained that the computer was cremated along with her deceased uncle, the courtroom laughed. G-Research's lawyers also asked Xu about the job offers he received before leaving the UK. One came from Cubist Systematic Strategies, a division of Point72, a private hedge fund run by billionaire Stephen Cohen.

Cohen emerged from his own confrontation with the scandal, as Xu knew well. While no charges were ever brought against Cohen himself, several employees of his former company, SAC Capital Advisors, were convicted in an insider trading investigation and pled guilty and paid a $ 1.8 billion fine to settle the charges. In June 2014, Xu testified, flew to Connecticut for an interview, and briefly met with Cohen in his office surrounded by commercial displays.

Cohen told Xu that Point72 is a merit-based position and that if he works hard, he will be rewarded. “Everyone loves me, especially Steve,” Xu later told his wife. He dismissed G-Research's hints that he was proposing Cubist confidential strategies because, he said, he believed Cohen would not risk using them.

“He paid a huge price before,” Xu told the jury. "He will never make the same mistake again."

When Xu Lu Juanhe's elderly mother testified via videoconference from a law firm somewhere in China, the Internet connection continued to go down. Once this was finally established, it took her a few minutes to get her sworn in as the English lawyer asked the courtroom interpreter to ask the Chinese lawyer to ask Lu if he promised to tell the whole truth. The interrogation continued like this: Lou explained that the computers he received from his son — five in all, plus a hard drive, an iPhone, and several memory cards — were gifts that he believed to be his own. She recalled that a lawyer had come to her home trying to get them back, and she was so angry that she woke up at 5 a.m. on December 30, went with her husband to the Yangtze and threw a few into the water. G-Research attorney James Hines challenged Lou.

"You didn't leave home that morning, did you?" He asked how he knew. "You are being watched by a private investigator," he replied. "How did you send this private investigator?" "They are watching you," Hines said.

It turned out that Chinese investigators had been tracking Lu and her husband for 11 months. Two investigators testified that they rented a nearby apartment and watched the couple take turns getting out of the car. They took pictures similar to the one shown to Xu's father, a former accountant with heart disease, with the caption "Goal, play mahjong, one to five." Investigators also provided photographs that they took at the couple's front door every hour, starting at 4:28 am on December 30, to establish what they were looking at that morning.

In January 2017, a jury found Xu guilty on two of five counts in a private indictment, deciding that while he could not be held responsible for not returning the computers, he misinterpreted where the stolen information went and who he had access to. The judge sentenced him to an additional 18 months, saying, "We all know what bets you played."



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