Friday, September 29, 2023
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7th Circuit Overturns Restitution in Stock Case

CHICAGO (CN) - A finance analyst did not cost his former employers $12 million when he stole proprietary high-frequency trading software for his personal use, the Seventh Circuit ruled.

Yihao Pu, 28, a quantitative finance analyst, worked for "Company A" an organization not named in the judgment and Citadel, both financial companies that engage in high-frequency trading.

High-frequency trading allows traders to buy and sell stocks in a fraction of a second, and thereby immediately capitalize on price movements.

Pu stole the proprietary software necessary to engage in this kind of trading.

But rather than sell his employers' trade secrets to someone else, he used the software to trade on his own behalf, and lost approximately $40,000 in the process.

Pu pled guilty to unlawful possession of a trade secret, received a 36-month prison sentence, and was ordered to pay over $750,000 in restitution based on a finding that he intended to cause his employers a loss of $12 million.

The Seventh Circuit reversed the restitution award on Feb. 24.

"There is no direct evidence of how much of a loss Pu intended Company A and Citadel to suffer," Judge Ann Claire Williams said, writing for the three-judge panel.

The $12 million figure is the amount it cost both companies combined to develop their high frequency trading platforms.

But Pu cannot be held accountable for the value of the secrets he stole without any showing he intended victims to suffer that loss, the court ruled.

Further, the government did not show that Pu had any scheme to sell the information to an interested buyer.

If a defendant stole a credit card with a $20,000 line of credit, "we could clearly see that an intended loss amount of $20,000 would be proper because there was evidence that he intended to purchase items until he reached the credit limit of the credit card," Williams said. "Here, the district court's only finding regarding Pu's intent further suggests that the intended loss finding was erroneous."

On remand, the panel said the government must provide a complete accounting of the companies' losses.

"It is unclear what the district court believed, but our impression from the record is that the district court may have thought that Pu's conviction mandated a finding of an economic loss to the victims of an amount that was greater than zero. No such finding was required," Williams said.

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