Who knew that part of Ray Dalio’s “radical transparency” fetish was accusing potential competitors of stealing trade secrets, and when there is no theft, to radically fabricate “evidence” to shut them down?
While it has long been known that in the annals of active management lore, not one hedge fund comes even close to pursuing non-compete clauses and trade secrets lawsuits against its former employees with the same ferocity, tenacity and unbridled glee as the world’s biggest hedge fund Bridgewater (despite valiant attempts by RenTec and Citadel they are at best runners up), what nobody knew until now, is that when Bridgewater was lacking enough legal facts on its side, it would resort to simply fabricating them.
That’s what the world’s biggest hedge fund did on at least one occasion according to a panel of three arbitrators, who according to the FT, found that Bridgewater “manufactured false evidence” in its attempt to prove that former employees had stolen its trade secrets.
According to humiliating – to Ray Dalio – court documents which were made public on Monday, and which quote findings from a panel of three arbitrators, Bridgewater – which manages $138BN in assets, and whose billionaire founder prides in the way “radical transparency” is shoved down all employees’ throats – was found to have “filed its claims in reckless disregard of its own internal records, and in order to support its allegations of access to trade secrets, manufactured false evidence”.
The dramatic discovery emerged as a result of a dispute launched by Bridgewater against former employees, Lawrence Minicone and Zachary Squire, in November 2017, in which the fund claimed the duo had misappropriated trade secrets and breached their contracts. However, Bridgewater’s attempt to bully not only its former employees from launching a new fund, but also the legal system, promptly suffered a spectacular breakdown, when a panel of three arbitrators found that Bridgewater had “failed to identify the alleged trade secrets with specificity”, knowing Minicone and Squire would have to fight an expensive case in order to defend against the allegations, the court filing states.
In other words, even though its former employees – who quit years prior in mid-2013 – did nothing wrong, Bridgewater knew that simply by throwing armies of lawyers after them, it could bankrupt them into submission. And while this strategy has worked over and over, this time it failed.
“The trade secrets as described constituted publicly available information or information generally known to professionals in the industry, and . . . Claimant [Bridgewater], a highly sophisticated entity, knew that the trade secrets as described did not constitute trade secrets,” the tribunal ruled, according to material quoted in the court filing.
There was more. Just to cover its bases, in addition to the trade secrets claim, Bridgewater also accused its two former employees of unfair competition after they co-founded Tekmerion Capital Management, a systematic macro hedge fund with about $60MM in assets under management, which received backing from billionaire Alan Howard and Michael Novogratz.
But here too, Bridgewater hit a brick wall, when the arbitrators found that Bridgewater’s claims had been brought in “bad faith”.
“Claimant’s actions in continuing to press its claims constitute further evidence that its intentions were not to prove misappropriation, but rather, were to adversely affect respondents’ ability to conduct a competitive business,” the arbitrators ruling stated, according to the new court filing.
So how did all of this leak? Simple: Bridgewater was too stingy to pay the falsely accused duo $2 million in lawyer fees, forcing Minicone and Squire to file a court petition against Bridgewater on July 1 to confirm the $2 million in lawyers fees awarded by the arbitration panel in January and, in a move that is set to terminally humiliate and expose Dalio as a consummate hypocrite, to have the full decision by the arbitrators made public.
And while it is hardly news to those in the industry just how despicable Bridgewater’s tactics have been in the past when faced with a potential competition emerging from its own ranks who may – gasp – steal the fund’s “trading secrets” such as momentum and inverse variance, which incidentally are perfectly public “strategies“, or at least expose to the world just how Bridgewater ended up being a
$160BN $138BN hedge fund, what we are far more interested in is whether Bridgewater’s former general counsel was instrumental in creating the strategy used by the fund against its former employees.
We are, of course, talking about one James Comey.
Here are the specifics: Squire joined Bridgewater in 2010 as an investment associate and spent three years at the group working with its research and trading teams before quitting in mid-2013. Minicone, also an investment associate at Bridgewater, joined in 2008 and remained there for almost five years. He too quit in 2013.
What does that have to do with James Comes? Well, before joining the FBI, readers may or may not know that the man who singlehandedly tried to take down the standing US president on what he knew well were false charges, was general counsel of Bridgewater from 2010 to 2013 – the very years that overlapped with Squire and Minicone’s tenure at Bridgewater too.
Yet what is remarkable is that the exact same strategy was pursued against the two former Bridgewater employees as Comey, now in his capacity as disgruntled former FBI chief, would pursue against Trump: fabricating evidence behind a FISA Warrant, and then purposefully leaking select confidential fact and fiction to the NYT, in order to trigger a Special Counsel probe of a sitting US president.
Sadly for Comey, his attempt at a soft coup failed, but the same fundamental strategy was used in both cases. Which is why we wonder: was Comey also the mastermind behind the legal strategy used to pursue all those Bridgewater traders that dared to leave the highly confidential fund and start their own thing.
As for Dalio, who checked out long ago, and is far more excited about his annual pilgirmage to Burning Man…
Just back from Burning Man. Reminds me of Woodstock with better art (installations) and less good music. What a great vibe and what amazing creativity!
Photo is with my pal and coworker Jeff Taylor at his great music camp Root Society. If you go next year, 1-5am is best. pic.twitter.com/ua5UIbRlxo
— Ray Dalio (@RayDalio) September 2, 2019
… in a TED talk Dalio delivered in April 2017, he said the group had created an “ideas meritocracy” by effectively preventing employees from keeping secrets. “We literally tape almost all conversations and let everybody see everything,” he told the audience. Oddly enough, he said nothing about fabricating evidence to make sure any chance of true meritocracy is trampled before it even has a chance to emerge.
As the FT concludes “Bridgewater has said that one in five hires leaves within a year”… in light of the latest news, it must the non-sociopathic hires.