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A U.S. derivatives broker's 10-year grudge ends, with big penalties
March 7, 2013 / 3:31 PM / 5 years ago

A U.S. derivatives broker's 10-year grudge ends, with big penalties

NEW YORK, March 7 (Reuters) - Old grudges can die hard, particularly in the world of derivatives trading and brokerage. A judgment delivered by the New York Supreme Court this week showed that sometimes they can also be costly.

The New York Supreme Court in Manhattan decided late on Wednesday that two former employees of New York-based brokerages, Wesley Wang and Jason Horowitz, must pay former colleagues James Cawley and Brady Halper and their former firm, credit derivatives brokerage IDX Capital, $8.25 million for interfering with a deal to sell IDX to equity brokerage Knight Capital Group.

Wang’s strong animosity towards Cawley, the head of IDX, motivated him to try to scuttle the $25 million deal in 2006 at a time when Knight was looking to expand into the rapidly growing credit space, court papers show.

Among other things, Wang sent pseudonymous emails to Knight executives that maligned Cawley, and posting similar defamatory information on internet Web sites. He also worked with Horowitz to hack into IDX’s computer systems to find confidential information he could use.

Knight ultimately decided not to buy the company. The documents show the firm as particularly sensitive to the risk of adverse press publicity, several years after the company’s founder stepped down in a trading scandal that led the firm in 2004 to settle charges with the U.S. Securities and Exchange Commission for “defrauding” investors.

The bad blood between Wang and Cawley dates back a decade, when they were among the founding members of Axiom Global Partners, an inter-dealer broker formed in 2002 to take advantage of the burgeoning market in credit derivatives.

That firm collapsed in acrimony after a control dispute, and a very public legal battle that involved lewd and libelous allegations repeated in the tabloid press. An agreement in 2005 to settle the dispute and buy out Wang and some others, included that all parties involved would not disparage each other in the future.

Wang, however, did not stand down.

In 2006 he learned of Cawley’s proposed sale of IDX, and acted to stop it, court records show.

Wang sent Knight employees - including Chief Executive Thomas Joyce - a series of emails about Cawley and Halper from email accounts that adopted the names of the alias of the comic book character “Daredevil” and Holocaust victim Anne Frank, court records show.

He later sent an email to Cawley’s wife that made reference to Cawley’s son, making the family feel unsafe, the records show.

“I hate hearing Cawley do well at all,” Wang said in one message presented in the court records.

Wang declined to comment through his attorney, John Nonna of Patton Boggs in New York. Nonna said he expects to appeal the court decision.

Cawley, who now heads a derivatives trading platform, Javelin Capital Markets in New York, said “we are elated with the decision and are happy that this whole affair is finally behind us.”

For Wang, the financial penalty from compensatory and punitive damages may cost him ownership of an apartment in New York’s SoHo district and investments that include a 19 percent stake in Phoenix Partners Group, a New York-based credit derivatives inter-dealer broker he helped found, the court records show.

He filed for bankruptcy on Wednesday in the U.S. Bankruptcy Court in the Eastern District of New York.

Horowitz, a former head of information technology at IDX, helped Wang hack into computer systems at IDX after he left the firm to learn confidential information, the court documents show. He referred a call to his attorney Stephen Fox, of law firm Morris & Fox, who said that they plan to appeal the ruling.

Knight executives were nervous over any risk of negative press attention, and Wang’s emails were enough to raise concerns over a new round of bad publicity.

Knight recently agreed to be bought for $1.4 billion by Getco Holding, after it suffered massive losses from a rogue algorithmic trading program last year.

Wang’s allegations led Knight’s chief financial officer Steven Bisgay, formerly head of business development, to worry that the deal would violate a “No A-hole Rule” the company has relating to its hiring, Bisgay said in court testimony.

For Knight’s Joyce, one of Wang’s email handles, that of Matt Murdock, the alias of the Daredevil comic book character, was nonetheless educational.

After the reference was explained to him, Joyce wrote in one email to a colleague: “Quite unbelievable. We need to send an email back to Matt and ask him how Foggy Nelson is doing,” referring to another character in the Daredevil comic, the court records showed.

Knight spokesman Jonathan Mairs declined to comment on the case.

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