(Bloomberg) -- A London-based investment firm accused a hedge fund of misusing trade secrets to set up its own lucrative fund, according to allegations at a UK trial.
Illiquidx Ltd. sued the hedge fund Altana Wealth Ltd. following a failed attempt to set up a joint venture in 2019. The relationship broke down within months and Altana allegedly used the confidential information shared during the short-lived partnership to set up a sanctions-compliant fund to invest in Venezuela’s sovereign debt, Illiquidx says in documents prepared for the trial that started this month.
The dispute, playing out in London’s High Court, shows just how much could be at stake for those trading in the debt of Venezuela’s defaulted notes. Having jumped in value last year, some holders are hoping that further gains will mint lucrative profits. The scale of the potential returns make such court cases worth fighting.
“You and I share twice the pie” without Illiquidx’s further involvement, Altana’s founder Lee Robinson is alleged to have told Brevent Advisory Ltd.’s director Steffen Kastner in an email, according to lawyers for Illiquidx. Robinson and Kastner, who introduced the two businesses, are also named as defendants in the case.
The email was sent in the context of Illiquidx walking away from the joint venture, Robinson countered during cross examination from Illiquidx’s lawyer during the trial.
Altana, Brevent, Robinson and Kastner denied all allegations and are contesting the claim. Illiquidx never provided information “beyond the general idea to invest in distressed Venezuelan debt,” and that was in part why the joint venture fell apart, Altana’s lawyers said.
“Nothing Illiquidx claims to have provided amounts to any sort of confidential ‘special insight’ or trade secret,” the lawyers said. “Indeed substantially all of the business opportunity and detail now relied on was trite” or public knowledge.
The trial is among a rising number of bitterly fought legal disputes around fiercely guarded business secrets in the financial industry. Courts in London have often hosted such cases as companies go to extreme lengths to protect against poaching and guarding valuable information.
The most prominent cases in the past year include rival quant funds trading accusations over a “special” trader with confidential information and BGC Group’s suit against an options broker over “extremely valuable” confidential knowledge about clients and trades.
Illiquidx had specialist knowledge about documentation and information non-US entities needed to buy Venezuelan bonds through Euroclear Ltd., its lawyers said.
All this was not known to Altana, the lawyers said. The legal advice was not brought to the joint venture by Illiquidx and was not subject to confidentiality for the claim, Altana’s lawyers countered.
“We provided the defendants with a fully developed and functional investment idea that was scalable and included setting up a fund to scale it up,” Illiquidx’s founder and managing director Galina Alabatchka said, according to the document prepared by the lawyers.
“Illiquidx’s allegations are baseless,” a spokesman for Altana said in an emailed statement sent to Bloomberg in June. “We will continue to vigorously defend ourselves and as we expect to be successful, we will be seeking a significant costs award.”
Altana’s spokesperson declined to comment while the trial was in process.
Big Gains
Illiquidx specializes in thinly-traded assets that are often hard to find or in some way difficult to buy, and the firm has been trading in the debt of Venezuela for a number of years. Buying the debt of the country and some of its biggest companies may have handed investors big wins, and it’s possible profits could still increase. Robinson told Bloomberg News in November that returns from the Altana Credit Opportunities Fund had jumped more than 60% from its inception in 2020.
The South American nation’s sovereign debt was in default in 2019 when the then US president Donald Trump prohibited US entities from dealing with it without a license from the Office of Foreign Assets Control. Signs of that stance softening had traders hoping for a windfall.
Between the 2019 sanctions and 2022, only three new funds in the world were launched to invest solely in Venezuelan sovereign distressed situations — Altana Credit Opportunities Fund, Illiquidx’s Canaima fund launched in 2020 and one other called the Copernico Recovery Fund, the lawyers for Illiquidx said in the documents.
Despite a drop in the value of Venezuelan debt after Nicolas Maduro’s disputed presidential election victory in July, many notes are now trading at twice the level they were a year ago. Investors like Altana are holding out for a further rehabilitation of Venezuela, which would lead to big wins for those who bought its debts while they traded at mere cents on the dollar.
The market and Altana were not aware of the potential value of distressed investment opportunities in Venezuela and how to monetize it, lawyers for Illiquidx told the court.
Cayman Fund
Its case against Altana revolves around Illiquidx’s intention to collaborate to launch the fund called Canaima. A Cayman Islands company, Canaima SPC, was formed in September 2019 for the joint venture but Illiquidx and Altana parted ways the same autumn, according to a previous court ruling in the case.
Altana incorporated a special purpose vehicle called Canaima in the Cayman Islands in 2019, and then renamed it as Altana Credit Opportunities Fund the following year as part of the regulatory approval process, Robinson said in an email n recent months. “At all times the vehicle was 100% owned and paid for by Altana,” he said.
Robinson and Altana are “hugely experienced investment managers” with detailed knowledge of distressed sovereign debt, their lawyers said. “It is quite remarkable for Illiquidx to suggest that that high-level list of categories of investments could ever be confidential to it.”
--With assistance from Nicolle Yapur, Nishant Kumar and Luca Casiraghi.
