Telluride Asset Management LLC v. Eric Falkenstein

All documents listed are unsealed, public documents, available at

Hennepin County, Minnesota website, Civil Case No. 27-CV-07-4832
 

Below are pdfs of documents publicly available at the Hennepin county court records office in Minneapolis, Minnesota.

Peter Hajas hand delivers letter on March 19, 2007 informing Eric Falkenstein that:

"...anything that you invented since September 1, 2006 that relates to the profitability, accruals, volatility, and capital issuance of equities cannot be anything but derivative of your work at Telluride...The fact that 'mean-variance optimization' is well known concept that is in the public domain does not change the fact that Telluride told you to add it to a specific model involving profits and accruals of equities.  That fact is not generally know nor readily ascertainable by proper means...There is simply no way that you can erase from your mind what you did for Telluride ... If we have not heard from you by the end of the day tomorrow, Telluride will be filing suit seeking injunctive relief and damages".

This was very problemati, because a previous Telluride employee, Stanley Zheng, was sued a year before after leaving Telluride. His wife did not want to move to Minneapolis, so he left for New York, hoping he and his wife could perhaps start a family (he in late 30s). Hajas objected, asserting that Zheng had abridged his confidentiality agreement (he traded pairs at Telluride as he had done previously, perhaps the most common hedge fund strading strategy worldwide, and was at Telluride for less than a year). Zheng had limited means to fight a lawsuit, and signed a consent degree (see here), that had as one of its conditions:

"Defendant Zheng shall be enjoined from using any invention, discovery, computer software proggrams, trade concepts, designs, patents, ideas, and copyrightable and/or patentable materials made, conceived or developed by him while employed by Telluride."

Now, if Hajas is trying to protect Telluride from the transporting some undefined special aspect of pairs trading, and is successful, and then claims in my case anything related to profitability or mean variance optimization, acceding to his demands would cover any potential strategy conceivable, making me unhirable as a portfolio manager, if not a risk manager, quant, or analyst. Further, it included my most treasured insight, volatility as an equity decision tool, as this was a factor because risk and return were not related, something that I had applied at previous funds, was the subject of my dissertation, and had written on extensively. It was preposterous that I now forget this concept merely because I applied it within Telluride. Stanley Zheng went back to China after signing his consent decree. Unfortunately, I don't speak Chinese.

Round 1: initial briefs circa March 2007

Round 2: Spring/Summer 2007. Falkenstein tries to insert counterclaims for tortious interference, Telluride tries to Compel discovery, Falkenstein tries to force Telluride to define trade secrets and confidential information with specificity.

  • Defense answers to Telluride claims in April 2007
  • Telluride claims circa April 2007
  • Telluride lawyers letter to Falkenstein lawyer May 8, 2007
  • Falkenstein lawyers response letter to Telluride lawyers, May 15, 2007
  • Falkenstein lawyer letter to Telluride Letter June 15, 2007
  • Falkenstein's memo against Telluride's Motion to Compel
  • Telluride's memo to Dismiss Counterclaim
  • Telluride's memo to Compel discovery
  • July 17 2007 hearing transcript

Falkenstein Lawyer: There is no way that Mr. Falkenstein can go to a new employer and say, well, see, here's the specific things that I'm precluded from using. So if we just steer of this, you know, I'll be in the clear. But because of the broad, vague allegations that are set forth he can't do anything. Basically, he is on the sidelines until this is done. And that is why he is here today. He didn't have to take off work to come here today, he sits at home every day, no one will hire him. So --

THE COURT (Judge Schellhas): Doesn't he golf?

[laughter in courtroom]

  • September 05 2007 Court's dismissal of my initial counterclaims

Round 3: Summer/Fall 2007. Haggling over discovery, Falkenstein asking for Telluride to define trade secrets with specificity, Telluride saying they have

Telluride wins motion to compel without further definition of intellectual property

Round 4: Spring 2008. Falkenstein inserts counterclaims of tortious interference, and other items

  • May 1 2008 Falkenstein Motion in Opposition to Telluride's Motion for a Protective Order on Michael Lippold, and motion to compel discovery
  • Falkenstein May 2008 redacted Memo for Counterclaims
  • Falkenstein May 2008 redacted Brief for Counterclaims
  • May 1 2008 hearing transcripts
  • May 8 2008 Court's order on May 1 2008 hearing, allowing counterclaims, disallowing protective order sought by Telluride, but allowing Telluride to not produce deleted files in the manner they have them

Falkenstein wins insertion of counterclaims.

"Mr. Hajas' March 19 2007 letter which states, 'That anything that Mr. Falkenstein has done relating to certain equity factors since leaving Telluride, cannot be anything but derivative of what Mr. Falkenstein did at Telluride.' That statement put the nail in the coffin of Mr. Falkenstein's deal with Mr. Kessler... the evidence demonstrates that Mr. Hajas statement was utterly baseless, knowingly over broad, and calculated to drive Mr. Falkenstein out of the industry."...

Round 5: Summer 2008. Mediation.

previous Telluride Litigation where they were trying to force plaintiff to define intellectual property prior to discovery

Telluride's previous similar complaint against former employee Stanley (Xu) Zheng