Summary: The investment company developed a system to better predict stock prices that they licensed to data company Revere. The resulting revenue is under question.
A small investment company started by Eric McGill and Paul Mingardi, two Massachusetts Institute of Technology graduates, called Ashbury Heights Capital LLC, filed a lawsuit accusing a former partner, Revere Data, of mishandling data. The investment company conducts analysis and runs a small hedge fund.
Ashbury Heights claims that their old data partner misused intellectual property and under-reported revenue. Ashbury designed a methodology to predict the movement of stock prices based on economic information and extrapolations between customer-supplier relationships. The system allows investors to predict the impact that unrelated events have on publicly traded companies that use supply-chain analysis. The system uses tools similarly to how Google ranks pages along with graph theory.
The two companies partnered up in 2010 where Revere licensed the system developed by Ashbury and offered it to a number of hedge funds. Revere marketed the product as a “Relationship Analytics Engine”. They saw a boost in sales and clients, including WorldQuant, Two Sigma, Renaissance Technologies LLC, BlueCrest Capital Management LLP and the Director of National Intelligence.
Ashbury claims that Revere failed to report all of their revenue from the licensing and misused their intellectual property. The data company has since been sold to FactSet Research Systems Inc in 2013 for $15 million. FactSet is a publicly traded analytics company.
Before, it was unclear how exactly private firms on Wall Street used analytical and data techniques in the trade of stock. This dispute has provided a glimpse into how some hedge funds like Two Sigma Investments LLC and WorldQuant LLC predict stock prices.
The case will not be moving into confidential arbitration, as defendant’s motion was denied. Instead, the case will go to trial September of next year.
Source: http://www.wsj.com/articles/legal-suit-shedding-light-on-secret-trading-technology-1434965402
Photo: ashburyheightscapital.com