Mikhail 'Misha' Malyshev ordered to pay fine to 2 charities after violating judge's order to preserve potential evidence in lawsuit
A former executive of hedge fund manager Citadel Investment Group LLC recently gave about $1.1 million to two Chicago charities, but the payments were not an act of good will.
The money was actually a fine that a Cook County judge ordered Mikhail "Misha" Malyshev to pay for violating a previous court ruling to preserve documents in a lawsuit. In July 2009, Citadel had sued him for breaking a contractual promise not to compete with the hedge fund.
Citadel had asked Judge Mary Rochford to sanction Malyshev when it discovered that he had used scrubbing software to erase files on his home computers. In an usual move, the company requested that any penalty be donated to charity. It selected the Greater Chicago Food Depository and the Coordinated Advice and Referral Program for Legal Services (CARPLS), according to court papers.
Malyshev sent $553,049.24 to each organization about a week ago, according to his lawyer, Chris Gair of Jenner & Block, after withdrawing his appeal of the judge's sanction.
Gair said he had never heard of such a large sanction in Illinois courts. His assertion was hard to verify but other judges in the Daley Center were surprised when told of the amount.
Even Rochford, in her July order, recognized that the penalty was significant. But it was less than Citadel had requested. Much less.
The hedge fund asked for a staggering $15 million penalty. But the amount does not seem so large in context, Citadel said. Malyshev earned $150 million in 2008, the company said in court papers, so the penalty would have amounted to just 10 percent of his income.
Malyshev led Citadel's high-frequency trading group, with co-defendant Jace Kohlmeier as his top deputy. Together the men ran a department that made more than $1 billion in 2008, using computer programs to make rapid-fire trades across multiple trading venues. They left in February 2009 to form their own securities trading firm.
Citadel scored a partial victory in October 2009 when Rochford granted its request to temporarily block the pair from working at their own firm. Her ruling also granted sanctions against Malyshev, ordering him to pay Citadel's legal fees and costs associated with a forensic review of his home computers. The judge reserved the right to fine him for disobeying her order to preserve potential evidence.
Malyshev denied intentionally erasing Citadel files on his computers and testified that the only active files deleted were pornography.
Rochford, however, found Malyshev's conduct and testimony "more egregious than anything encountered before" in her experience.
"Malyshev has acted in disregard of the orderly administration of justice," the judge wrote in her July 13 ruling. "He improperly and significantly disrupted the discovery process and impaired the truth-seeking process for all parties."
She said the $1.1 million penalty was appropriate to deter future misconduct and to protect the integrity of the discovery rules. The penalty, the judge said, was equal to the legal fees and costs.
But she said Citadel's $15 million request was inappropriate because it was aimed at punishing Malyshev. Citadel declined to comment on the judge's order. One of Citadel's attorneys, Shawn Fagan, sits on the board of CARPLS.
Allen Schwartz, executive director of CARPLS, said the money would create some fiscal stability after the organization lost one-fourth of its funding in 2008. But the funds likely would be used to replenish the organization's reserves and not hire new staff, he said.
The money was actually a fine that a Cook County judge ordered Mikhail "Misha" Malyshev to pay for violating a previous court ruling to preserve documents in a lawsuit. In July 2009, Citadel had sued him for breaking a contractual promise not to compete with the hedge fund.
Citadel had asked Judge Mary Rochford to sanction Malyshev when it discovered that he had used scrubbing software to erase files on his home computers. In an usual move, the company requested that any penalty be donated to charity. It selected the Greater Chicago Food Depository and the Coordinated Advice and Referral Program for Legal Services (CARPLS), according to court papers.
Malyshev sent $553,049.24 to each organization about a week ago, according to his lawyer, Chris Gair of Jenner & Block, after withdrawing his appeal of the judge's sanction.
Gair said he had never heard of such a large sanction in Illinois courts. His assertion was hard to verify but other judges in the Daley Center were surprised when told of the amount.
Even Rochford, in her July order, recognized that the penalty was significant. But it was less than Citadel had requested. Much less.
The hedge fund asked for a staggering $15 million penalty. But the amount does not seem so large in context, Citadel said. Malyshev earned $150 million in 2008, the company said in court papers, so the penalty would have amounted to just 10 percent of his income.
Malyshev led Citadel's high-frequency trading group, with co-defendant Jace Kohlmeier as his top deputy. Together the men ran a department that made more than $1 billion in 2008, using computer programs to make rapid-fire trades across multiple trading venues. They left in February 2009 to form their own securities trading firm.
Citadel scored a partial victory in October 2009 when Rochford granted its request to temporarily block the pair from working at their own firm. Her ruling also granted sanctions against Malyshev, ordering him to pay Citadel's legal fees and costs associated with a forensic review of his home computers. The judge reserved the right to fine him for disobeying her order to preserve potential evidence.
Malyshev denied intentionally erasing Citadel files on his computers and testified that the only active files deleted were pornography.
Rochford, however, found Malyshev's conduct and testimony "more egregious than anything encountered before" in her experience.
"Malyshev has acted in disregard of the orderly administration of justice," the judge wrote in her July 13 ruling. "He improperly and significantly disrupted the discovery process and impaired the truth-seeking process for all parties."
She said the $1.1 million penalty was appropriate to deter future misconduct and to protect the integrity of the discovery rules. The penalty, the judge said, was equal to the legal fees and costs.
But she said Citadel's $15 million request was inappropriate because it was aimed at punishing Malyshev. Citadel declined to comment on the judge's order. One of Citadel's attorneys, Shawn Fagan, sits on the board of CARPLS.
Allen Schwartz, executive director of CARPLS, said the money would create some fiscal stability after the organization lost one-fourth of its funding in 2008. But the funds likely would be used to replenish the organization's reserves and not hire new staff, he said.
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