Wendel Rosen's Intellectual Property Blog

7th Circuit Grants Partial Reprieve to Trade Secret Thief Who Couldn’t Shoot Straight

Crime Does Not Pay

You have to feel a little sorry for Yihao Pu. Pu was a finance engineer who worked for two companies with proprietary systems for executing high frequency stock trading (HFT.)  Pu illegally downloaded his employers’ software, but instead of selling it to a competitor, he decided to use it to further his own investments, and promptly managed to lose $40,000 of his own money.

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Somehow this criminal mastermind got caught, and Pu faced federal indictments for wire fraud, transmission of trade secrets, unauthorized access of a protected computer and obstruction of justice. Pu pled guilty to possession and transmission of trade secrets.

Pu’s Sentencing

At sentencing, Pu argued that since he hadn’t gained anything (remember he lost $40,000) and his employers hadn’t suffered any actual loss, he should not have to pay restitution. The district court disagreed, finding that Pu’s employers had spent more than $12 million developing their respective HFT algorithms, and this represented the “intended loss amount.”  Using this intended loss amount, the trial court applied the sentencing guidelines and sentenced Pu to three years in prison, three years of probation and ordered him to pay $759,649.55 in restitution.

Pu’s Appeal

Pu appealed the restitution order, and his luck must be turning because the 7th Circuit agreed.  The 7th Circuit held the district court erred in finding that “it was more likely than not that Pu intended to cause a loss to the victims that equaled the cost of development [$12 million].”  The 7th Circuit noted that there was no evidence that Pu had some grander scheme other than his own inept attempts to use the HFT system for his own trading.  The 7th Circuit criticized the district court for failing to consider Pu’s argument that he only stole the outputs and not the source code and thus “the intended loss should be zero, or at most $2,000.”

On appeal, Pu further argued that the district court mistakenly believed that because Pu had pled guilty, it was required to find intended loss and impose restitution. The 7th Circuit agreed that “the guidelines do not require a loss calculation greater than zero,” and left it to the district court to determine the proper restitution award on remand.

Finally, Pu objected that the district court appears to have ordered restitution based on his employers’ conclusory summary of their costs investigating Pu’s misdeeds, which (not coincidentally) totaled $759,649.55. The 7th Circuit agreed, noting that “the district court is required to base its restitution order, the extent practicable, on a complete accounting of the loss” and that Pu’s employer’s conclusory summary was not sufficient.

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