(Bloomberg) – A London-based investment firm has accused a hedge fund of misusing trade secrets to set up its own lucrative fund, according to allegations in a British court.
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Illiquidx Ltd. sued hedge fund Altana Wealth Ltd. in 2019 after an attempt to form a joint venture failed. The relationship broke down within months, and Altana allegedly used confidential information shared during the brief partnership to set up sanctions. In documents prepared for his trial, which began this month, Iliquidix said he had set up a compliant fund to invest in Venezuelan government bonds.
The dispute, which is being heard at the High Court in London, shows how much danger can be at stake for those trading debt in Venezuela’s defaulted notes. After soaring in value last year, some holders are hoping for further gains for huge profits. Given the magnitude of the potential benefits, such cases are worth fighting.
Illiquix’s lawyers say Altana founder Lee Robinson emailed Stephen Kastner, director of Brevent Advisory, saying “you and I will share the pie twice” without further involvement from Iriquix. It is said that this was communicated via email. Robinson and Kaestner, who introduced the two businesses, are also named as defendants in the lawsuit.
The email was sent in the context of Iliquik walking away from the joint venture, something Robinson disputed during cross-examination by Iliquik’s lawyers during the trial.
Mr. Altana, Mr. Brevent, Mr. Robinson and Mr. Kastner deny all allegations and dispute the allegations. Iliquidix never provided information “beyond the general idea of investing in distressed loans in Venezuela,” which contributed to the joint venture’s collapse, Altana’s lawyers said.
“What Iliquidix claims to have provided does not constitute confidential ‘special insight’ or trade secrets of any kind,” the lawyers said. “Indeed, virtually all of the business opportunities and details now relied on were obsolete” or public knowledge.
The case is one of a growing number of escalating legal disputes over closely guarded trade secrets in the financial industry. London courts often host such cases as companies go to great lengths to prevent poaching and protect valuable information.
The most high-profile cases of the past year include accusations of rival quantitative fund trading over “special” traders with confidential information and BGC Group’s options over “highly valuable” confidential information about clients and trades. – Examples include lawsuits against brokers.
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Ililiquids’ lawyers say Ililiquids had expertise in the documents and information needed for non-U.S. entities to purchase Venezuelan government bonds through Euroclear.
All of this was unknown to Altana, the lawyers said. Altana’s lawyers countered that the legal advice was not provided by Iliquidix to the joint venture and was not subject to claim confidentiality.
“We have provided the defendant with sufficient compensation, including the creation of a scalable and scale-up fund,” Galina Arabachka, founder and managing director of Ililiquids, said in a statement prepared by lawyers. “We provided developed and functional investment ideas.”
“Ililiquids’ claims are baseless,” an Altana spokesperson said in an emailed statement to Bloomberg in June. “We will continue to defend vigorously and seek significant spending in hopes of success.”
An Altana spokesperson declined to comment during the trial. A representative for Ililiquids declined further comment.
big profit
Illiquidx specializes in less traded assets that are often difficult to find or somehow difficult to buy, and has been trading Venezuelan debt for many years. Investors may have made big profits by buying the bonds of the country and some large companies, and profits could be even higher. Robinson told Bloomberg News in November that returns from the Altana Credit Opportunities Fund have increased by more than 60% since its inception in 2020.
The South American nation defaulted on its sovereign debt in 2019, prompting then-President Donald Trump to ban U.S. companies from handling the debt without permission from the Office of Foreign Assets Control. Traders were hoping for a windfall profit after signs of softening.
From 2019 sanctions to 2022, only three new funds in the world were created to invest exclusively in Venezuelan government crisis situations – Altana Credit Opportunities Fund, launched in 2020. Illiquid’s Canaima Fund was raised, and the other is called the Copernico Recovery Fund, Ililiquid’s lawyers said. in the documents.
Despite the decline in the value of Venezuela’s national debt after Nicolas Maduro’s victory in July’s presidential election, many banknotes are now trading at twice the level they were a year ago. Investors like Altana are calling for further restructuring of Venezuela, which would translate into a big win for those who bought Venezuelan bonds while trading for just a few cents on the dollar.
Iliquix’s lawyers said in court that Market and Altana did not recognize the potential value of distressed investment opportunities in Venezuela and how to monetize them.
cayman fund
The lawsuit against Altana revolves around Illiquidx’s intentions to help launch a fund called Canaima. A Cayman Islands company, Canaima SPC, was formed for the joint venture in September 2019, but Illiquix and Altana parted ways in the same fall, according to a previous court ruling in the case.
Altana established a special purpose vehicle called Canaima in the Cayman Islands in 2019 and changed its name to Altana Credit Opportunities Fund the following year as part of the regulatory approval process, Robinson said. said in an email in recent months. “At all times, the vehicle was 100% owned and paid for by Altana,” he said.
Mr. Robinson and Mr. Altana are “very experienced investment managers” with detailed knowledge of distressed sovereign debt, the lawyers said. “It is highly noteworthy that Illiquidx has indicated that its high-level list of investment categories may be confidential.”
–With assistance from Nicole Yapur, Nishant Kumar, and Luca Casiraghi.
(Illiquidx updates to decline comment in 14th paragraph)
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