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Hedge Fund Manager wins trade secret case


An interesting case of an ex-hedge-fund manager sued for stealing “trade secrets”.

Eric Falkenstein isn’t your typical 42-year-old hedge fund manager. Instead of trading stocks all day or courting new investors, he spends his time updating his blog, researching equity strategies, and talking to his lawyer. He’s a hedge fund portfolio manager who is legally restrained from managing hedge fund portfolios.

But Falkenstein didn’t embezzle funds, swindle unsuspecting investors, or violate insider-trading laws. Rather, he quit his job one September day in 2006 and he hasn’t been able to work since.

Several months after he resigned, Falkenstein’s former employer, Telluride Asset Management in Minneapolis, sued him for stealing the firm’s trade secrets and violating its confidentiality agreement.

It seems the case hinged on Falkenstein’s use of “mean-variance”, which Telluride said was their trade secret. Unfortunately for them, it’s existed for a few decades before them, and Falkenstein himself had researched it in his academic years. But they chose to bully him instead – finagling his home computers to try and prove he stole something. That means – he was not allowed to start a fund, or do anything till the case was proven, and to prove the case, Telluride was allowed to search whatever they wanted, even if it meant making Falkenstein umemployable or having no right to a living.


Luckily, Falkenstein stood up to the challenge. He had the money, so he battled it in court – for over 15 months – and maintained a no-comment position, and a few notes in his blog.

Now it seems he’s won, or rather Telluride has realized they have no real case. From Falkenblog:

My intellectual property case with my former employer has been settled with prejudice (see here), meaning, both sides agreed to withdraw their claims and cannot refile them. I have no comment on the case or the settlement.

More power to you, Erik.

Read the rest of that entry. It tells you what you should do if your employer is keen to sue. The last one is the best: “Be Rich.”. It’s quite true – even if you are on the absolute right side of the law, a legal disagreement can kill you purely on costs. It’s never about who wins, only about who can afford to lose.


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