DealBook: Bond Traders Shift Bets With Political Wind

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2 Charged With Stealing Code From Flow Traders Firm

Two men, one a former trader, have been charged with stealing secret computer code from a high-frequency trading firm in Manhattan in an effort to start their own business, the Manhattan district attorney’s office said. Another man was also charged in the scheme.

The former trader, Jason Vuu, who worked at Flow Traders in Manhattan, was charged with e-mailing himself trading strategies, valuation algorithms and proprietary code from the firm and sharing the code with Simon Lu, according to the district attorney, Cyrus R. Vance Jr.

Mr. Vuu sent copies of files from his work e-mail account to his personal e-mail address 10 times from August 2011 to August 2012, the complaint said. He also shared source code with Mr. Lu via the file-hosting service Dropbox after Mr. Lu suggested the code could help them start their own firm, according to the complaint.

Paul Shechtman, a lawyer for Mr. Lu, 25, of Pittsburgh, and Jeremy Saland, a lawyer for Mr. Vuu, 26, of California, did not immediately respond on Monday to requests for comment.

Another former trader at Flow Traders, Glen Cressman, 26, of Fort Lauderdale, Fla., was charged with copying files containing trading strategies and valuation algorithms without permission, according to the complaint.

Mr. Cressman’s personal e-mail account received copied files containing trading strategies and valuation algorithms twice in December 2012, according to the complaint.

Charles Ross, who represents Mr. Cressman, said his client was innocent.

“He was a fine employee, and when everything about the case is aired, it will be clear he did nothing wrong,” Mr. Ross said.

Mr. Lu, Mr. Vuu and Mr. Cressman face multiple counts of unlawful duplication of computer-related material and unauthorized use of secret scientific material. The charges carry up to four years in prison.

They were arraigned on the charges two weeks ago and are due back in court on Nov. 18, when they could face grand jury indictments.

A year ago, the Manhattan district attorney’s office charged a former programmer for Goldman Sachs, Sergey Aleynikov, with stealing secret trading code. Mr. Aleynikov was convicted in federal court, but an appeals court overturned his conviction in February 2012, restricting the use of a national law cited in the federal prosecutors’ case.

Mr. Aleynikov was then charged under New York state law. He has pleaded not guilty and is free on bail.

The charges in the Flow Traders case were reported earlier this week by The Wall Street Journal.

Stocks Fall as Traders Prepare for Fed Moves

The stock market dropped on Monday for a fourth consecutive trading session as investors continued to worry about the recent rise in interest rates in anticipation that the Federal Reserve would soon begin to wind down its huge economic stimulus.

The Dow Jones industrial average dropped 70.73 points, or 0.47 percent, to 15,010.74. The Standard & Poor’s 500-stock index lost 9.77 points, or 0.59 percent, to 1,646.06. The Nasdaq composite index fell 13.69 points, or 0.38 percent, to 3,589.09.

Investors had little data to digest on Monday, so the focus for many remained the continuing climb in bond yields. The yield on the 10-year Treasury note rose to 2.88 percent, from 2.83 percent Friday, as the note’s price declined 15/32, to 96 23/32.

The 10-year Treasury yield has risen sharply from a low of 1.63 percent reached in early May as the economy has improved and as investors begin expecting the Fed to start tapering its $85 billion-a-month bond-buying program as early as next month.

“We’ve been in this artificially low interest rate environment for so long, it’s hard to figure out what normal is,” said Jim Dunigan, chief investment officer with PNC Wealth Management.

The quick rise in bond yields has worried some investors because it leads to higher interest rates on many kinds of loans, including home mortgages and corporate loans.

“I do think we’re not too far away from that point in time where this heavy increase in bond yields is going to start impacting the markets,” said Doug Peebles, chief investment officer of AllianceBernstein Fixed Income.

Home builders were hit hard on Monday as traders were concerned that higher mortgage rates could upset a recovery in the housing market. Lennar, PulteGroup and D.R. Horton all fell roughly 4 percent.

Bank stocks dropped after a report from the Federal Reserve appeared to indicate that large bank holding companies — including JPMorgan Chase, Citigroup, Bank of America — may need to raise additional capital. JPMorgan fell $1.46, or 2.7 percent, to $51.83, while Bank of America lost 27 cents, or 1.9 percent, to $14.15. Morgan Stanley dropped 66 cents, or 2.5 percent, to $25.81.

Wall Street will be focused on the Fed this week, trying to forecast its intentions. On Wednesday the Federal Reserve will publish the minutes of its July policy meeting, and on Thursday the Fed starts its annual conference in Jackson Hole, Wyo.

Traders Book Day’s Gains, Blunting a Rally Set Off by Encouraging Economic Data

Stocks climbed on Monday, the first day of the third quarter, supported by signs of strength in the manufacturing and construction sectors. Even so, the major stock indexes pulled back from their session highs late in the day as investors sold some shares to book profits.

The Standard & Poor’s 500-stock index closed up 0.54 percent after jumping as much as 1.27 percent earlier in the day. But the gains followed the S.& P.’s rally of 12.6 percent in the first six months of 2013, which is the strongest first half of a year since 1998 for the benchmark.

“We’ve had a couple days of pretty good moves, and on Friday and today, you’ve had some intraday profit-taking,” said Richard Meckler, president of the hedge fund LibertyView Capital Management, in Jersey City, N.J.

Wall Street showed signs of stabilization last week after a sell-off that began because of concerns that the Federal Reserve’s bond-buying policy would end sooner than expected. June was the S.& P. 500’s first negative month since October.

Among the S.& P. 500’s 10 industrial sectors, the telecommunication and utilities sectors were the decliners of the day. The S.& P.’s telecommunication sector index slipped 0.1 percent, and its utilities sector index lost 1.3 percent.

The day’s early rally was brought on by data from the Institute for Supply Management that showed that American manufacturing activity grew in June, rebounding from an unexpected contraction in May.

The Dow Jones industrial average rose 65.36 points, or 0.44 percent, to close at 14,974.96. The S.& P. 500 advanced 8.68 points, or 0.54 percent, to finish at 1,614.96. The Nasdaq composite index gained 31.24 points, or 0.92 percent, to end at 3,434.49.

While fears about the Fed’s early exit from its stimulus efforts have calmed for now, analysts said the transition to a no-stimulus environment could cause further volatility.

“I still believe the market is trying to figure out how to price in slightly higher interest rates, even if rate increases from the Federal Reserve are still at least a year away,” said Randy Frederick, managing director of active trading and derivatives at the Schwab Center for Financial Research in Austin, Tex.

In government bonds, the benchmark 10-year Treasury note increased 3/32 to 93 22/32, sending the yield down to 2.48 percent, from 2.49 percent late Friday.

Off the Shelf: In ‘Buy Side,’ a Wall Street Trader’s Crash Landing

But I suspect that things might have turned out almost as badly as they did for Turney Duff, a callow, young hedge fund trader who writes of his own noteworthy flameout in a bracing new Wall Street memoir called “The Buy Side” (Crown, 320 pages).

Mr. Duff’s tale calls to mind books like “Bright Lights, Big City,” by Jay McInerney, and especially “Liar’s Poker,” by Michael Lewis — stories of wide-eyed newcomers confronted by the temptations of moneyed New York. As literature, it doesn’t rise to the same class. As spectacle, it easily trumps both.

Mr. Duff makes millions, pays brand-name rappers to perform at his birthday party and marries a glamorous singer. But instead of riding into the sunset, he ends up retreating to sumptuous hotel suites where he inhales piles of cocaine, swills Scotch and watches pornographic movies. By himself.

Along the way, by his own admission, Mr. Duff becomes a caricature of the arrogant young Wall Streeter that so much of America loves to hate. If “The Buy Side” is remembered for any single line, it will be the remark that Mr. Duff says he uttered one evening upon confronting a lengthy queue outside a downtown Manhattan nightclub. Barging past the bouncers, he announces: “I don’t stand in lines. I snort them.” He and his trading pals think the joke so hilarious that they later emblazon it on souvenir T-shirts.

A middle-class kid from Maine, Mr. Duff began his career in 1994, in the early years of the hedge fund era, when he arrived in New York as a fresh-faced journalism graduate from Ohio University. Unable to land a job in writing or anything else, he reaches out to an uncle on Wall Street, who arranges interviews with several of the big firms. Mr. Duff aces the one at Morgan Stanley by recapping the previous evening’s episode of “Melrose Place,” the interviewer’s favorite television show. Hey, so much for that diploma.

One of the book’s strengths is Mr. Duff’s self-awareness. He realizes what he became. At Morgan, where he spent five years as a desk assistant, he knew little about Wall Street and learned even less about investing, acknowledging that he was too lazy to read research. Where he thrived was after the closing bell, when he proved adept at staging office parties and leading his peers — and a few higher-ups — through the assorted watering holes he frequented.

His light-bulb moment comes one evening when he successfully introduces a group of pretty girls to a senior trader. “I realize I’m in my element,” he writes. “I feel in total control and at ease. Only in looking back can I see how seminal this moment is. I would never be able to stand out at my job. There I’m out-experienced, out-connected and out-degreed. But here, with a glass in hand, I have as good a chance as any to move and shake.”

Mr. Duff puts his social skills to good use when, unable to secure an actual trading job at Morgan, he moves to an up-and-coming hedge fund, the Galleon Group — the same Galleon Group that was eviscerated in Wall Street’s continuing insider-trading scandals.

As a “buy side” trader executing transactions for senior portfolio managers, he is a conduit to the “sell side” traders at the big Wall Street firms who actually carry out his trades. Mr. Duff’s decisions on how and where to allocate his trades make him of crucial importance to the sell-side traders, who earn commissions on them.

It is Mr. Duff’s portrait of how sell-side traders ardently romance their buy-side counterparts that is probably the book’s most memorable contribution to Wall Street literature. He takes everything they offer: booze, dinners, Super Bowl tickets, private jets to Las Vegas weekends, parties in South Beach, lots of cocaine and, while at Galleon, scads of tips that move stocks. One of his mentors, a trader named David Slaine, ended up cooperating with the government’s Galleon investigation, but the scandal proves peripheral to the book.

WHAT stays with you is the portrait of a young man who seemingly never met a temptation he could deny.

For a time, Mr. Duff rides high, earning million-dollar bonus checks, renting a TriBeCa triplex with drop-dead Hudson River views and eventually adding a wife, a Long Island manse and a beloved daughter. But the drugs soon take hold, and his long downward spiral grows uglier at every turn. After two stays in rehabilitation facilities, he loses the trading job he took after leaving Galleon, then his marriage and the real estate. The financial crisis does the rest, and today, Mr. Duff says, he tries to make a living writing from a tiny apartment in Long Island City, Queens.

Mr. Duff proves a fine wordsmith; his prose is smooth, lean and rhythmic. Where the book misfires — badly — is when he tries to plumb the existential side of things, or to employ literary artifice. There is one cringe-worthy chapter about his girlfriend (who would become his wife), where he begins every few paragraphs with a letter, “I,” then “I L,” and so on, which of course ends up spelling out “I LOVE YOU.” It made me want to throw the book across the room.

Almost as bad is his “Bud Fox” moment, the obligatory episode in these lost-in-Manhattan memoirs when the protagonist must replicate that memorable scene from Wall Street when Charlie Sheen, having sacrificed himself to Gordon Gekko and the gods of capitalism, stares out at the Manhattan skyline and asks, plaintively, “Who am I?”

Mr. Duff’s moment comes the morning after his 34th birthday party, when he wakes on the roof deck of his triplex, fires up a marijuana cigarette and realizes how hollow all his newfound wealth and party-hardy friends make him feel. “Why,” he wonders, “do I feel so empty?” My bet was all that cocaine; whatever the reason, I didn’t much care. I just wanted to smack the guy.

That said, this is an entertaining and cautionary tale, well worth your time. I can imagine parents out there who might give it to children pondering Wall Street careers. Of course, should it excite rather than frighten your budding Bud Fox, you might consider urging an alternative career path.