Chinese hedge fund manager charged by US in trade secrets case

(Bloomberg) — A co-founder of high-flying Chinese quantitative hedge fund Pinestone Asset Management Co. has been indicted in the U.S. for allegedly stealing trade secrets, according to people with knowledge of the matter.

Xiao Zhang, a 33-year-old Chinese national from Shanghai, was indicted by a federal grand jury in Boston for allegedly stealing secrets from an unidentified global investment management firm while working for it in 2021, according to an Oct. 1, 2021 statement. 31 of the United States Attorney’s Office in Massachusetts. The statement provided no further details about Zhang’s identity.

Zhang is one of two founders of Shanghai-based Pinestone, the people said, asking not to be named discussing private matters. He is Pinestone’s chief investment officer and largest shareholder and works in China, they said, adding that he has hired lawyers in the US and China to handle the case.

Zhang and Pinestone declined to comment. The US does not have an extradition treaty with China.

Pinestone has been one of the best performing quantitative funds in China lately. The two-year-old company’s assets under management have more than doubled since February to more than 10 billion yuan ($1.4 billion), a rare growth story this year in an industry struggling to adapt to wild market swings and heightened scrutiny.

The company, which focuses on low-frequency trading strategies, was PaiPaiWang Investment & Management Co., according to Shenzhen. the best performing Chinese quantitative company, managing over 10 billion yuan in the first half of this year, with a return of 10.3%. follows Chinese hedge funds.

According to the indictment, Zhang allegedly used a virtual private network to access his employer’s network from China in 2021, allowing him to “bypass the company’s controls.” He then allegedly made copies of his employer’s code, projects and research before using the items “with the intent to establish his own investment company” in China, the US attorney’s office statement said.

Zhang worked in the research department of Boston-based Arrowstreet Capital from July 2015 to August 2021, according to registration details on the Asset Management Association of China website. Wu Que, co-founder and chief executive of Pinestone, worked in Arrowstreet’s investment department from July 2017 to August 2021, association records show. Pinestone was founded in June 2022.

Phone calls and an email to Arrowstreet requesting comment were not returned outside business hours.

Theft of trade secrets carries a penalty of up to 10 years in prison and a fine of up to $250,000, according to the indictment.

Last year, a major Chinese quantitative hedge fund, Shanghai Ruitian Investment LLC, lost a high-profile lawsuit in China against a former employee who it alleged had compromised its technology secrets when he joined a larger rival.