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As we previously reported, Kang Gao, a former analyst for Two Sigma Investments, was indicted in New York for 11 counts related to the theft of trade secrets. He is being held on $1 million bail. Two Sigma also sued Gao on civil charges stemming from the same alleged taking of information regarding Two Sigma’s complex models.

Shortly after Mr. Gao’s indictment, Judge Jeffrey K. Oing of the New York Supreme Court held a hearing in the civil matter. During the hearing, Judge Oing was obviously deeply concerned by Two Sigma’s seeking of criminal punishment for Gao: “Aren’t you guys going over the top? I mean, I’ve done a lot of employer/employee cases and this is the first one where the employer has successfully put a former employee in jail for allegedly breaching the covenant of confidentiality” Defense counsel raises a very good point in saying that we may be going down a slippery slope. If this case continues, there perhaps may be an opening of the door for all employers to say, “you know what, we’re going to put these guys in jail now.”

Two Sigma’s attorneys defend their actions, citing the previous times Gao has been disciplined for similar behavior and that the District Attorney’s office conducted its own independent investigation before bringing criminal charges. Prosecutors have stated that Gao had been emailing Two Sigma’s confidential trading models to his personal account over a six month period.

While Judge Oing has yet to take any action in the case, it will be interesting to monitor the situation in this case and others. Whether the “slippery slope” he fears comes true is yet to be determined, but it is clear that there is an ever-present risk of both civil and criminal penalties in connection with a theft of trade secrets.

The civil action, Two Sigma Investments LLC v. Gao, Kang, is filed under case number 650506/2014 in the Supreme Court of New York, County of New York.

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