Hedge Funds Beware: Hacking Can Happen
September 1, 2011
A court case involving a hedge fund suing the estranged wife of its founder for allegedly hacking into his computer is bringing to light just how vunerable hedge funds are to data theft.
In a 15-page complain just filed in Manhattan’s New York state court, David Simon, a New York risk arbitrageur who runs Twin Capital Management, accuses his estranged wife, Linda Simon, of accessing a password-protected Twin Capital computer located in the Simons’ home in Purchase, N.Y.
The reason: to get her hands on the hedge’s funds highly-secret financial records and other information such as “proprietary algorithms and investment strategies, says a Forbes article appearing on Wednesday. Forbes described the information allegedly stolen as “financial records, intellectual property, trade secrets and attorney-client communications.”
Twin Capital, founded by Simon in 1988, has about $100 million in assets. An attorney, Simon was previously head of risk arbitrage at Spear, Leeds & Kellog which was bought by Goldman Sachs in 2000.
The alleged hacking, according to the suit, was uncovered by New York-based Alphaserve Technologies, which was responsible for monitoring use of Simon’s computer. Alphaserve, said the suit filed by Twin Capital, discovered that someone turned the computer on and off on August 3. Simon was the only one who knew his password and he was no longer living at home so he did not have access to the computer. On August 5, Alphaserve removed the computer from Simon’s home.
Alphaserve officials declined to comment on their role in uncovering the alleged computer hacking. The firm’s website lists network infrastructure and security among its areas of specialization. Other areas include document management and storage of information; business continuity and disaster recovery, desktop virtualization and applications; email and instant mail messaging and archiving; and communications infrastructure.
The extent of Alphaserve’s relationship with Twin Capital could not be determined nor could it be determined whether Simon could have been prevented from downloading any data. According to the suit, she hired a forensic technology firm to hack into her husband’s computer on the advise of her attorney at the New York law firm of Advocate & Lichtenstein . It is also unclear why Simon did not take his computer when he separated from his wife.
Twin Capital’s use of Alphaserve to monitor computer usage reflects a best practice in the hedge fund market, according to two hedge fund IT experts contacted by Securities Technology Monitor on Thursday morning.
Hedge funds typically hire tech firms such as Alphaserve to protect against the possible unauthorized use and theft of company information. That information can include not only trading strategies, but investor profiles and communications. “Data security is considered the cornerstone of hedge fund operations and fund managers are eager to ensure investors that information won’t fall into the wrong hands,” says one hedge fund IT consultant.
Institutional funds place plenty of emphasis on the soundness of a hedge fund's IT infrastructure and regulators will also do so now that many hedge fund advisers must be registered with either the Securities and Exchange Commission or a state agency.
