Liquidnet faces court action over private share venue

Wedbush Securities, a US-based broker dealer, has filed court proceedings against buy-side-focused block trading venue operator Liquidnet and two former Wedbush employees for alleged misappropriation of trade secrets related to a new private share platform.

The filing relates to Liquidnet’s appointments of Lou Kerner and Michael Silverstein, announced on 17 October, and the subsequent establishment of Liquidnet’s Private Shares Group, a new global initiative designed to facilitate trading in the shares of privately-owned companies such as Facebook and Twitter.

Kerner’s role at Liquidnet involves liaising with institutional investors seeking access to high-growth opportunities, as well as working directly with privately-owned, pre-IPO companies that want to set up transfers of equity stakes.

A court filing lodged at the New York Supreme Court alleges that Liquidnet, Kerner, who was formerly vice president of equity research covering social media and e-commerce at Wedbush, and Silverstein, engaged in “pre-meditated taking and misappropriation of certain of Wedbush’s most valuable trade secret and confidential and proprietary information including its detailed customer lists…with the goal of “starting” the same business they took from Wedbush at Liquidnet”.

Wedbush has operated its own Private Shares Group, as a division of its equity business, since March 2011.

Kerner is said to have informed Wedbush of his departure on 16 October. Liquidnet, Kerner and Silverstein are accused by Wedbush of having begun “blatantly soliciting Wedbush’s customers and potential customers” using the firm’s customer data the following day.

Wedbush is seeking to prevent Liquidnet from continuing to use its customer data and to obtain compensation.

Liquidnet has 20 days to reply to a court summons issued on 20 October. A spokesperson for Liquidnet acknowledged the lawsuit and said the firm was reviewing the allegations closely.

Earlier this year, a compromise agreement was reached by Liquidnet and ITG, a US-listed agency broker and technology provider, following a five-year legal dispute over the use of ‘blotter scraping’ technology deployed in the firms’ crossing networks.