A Teza Technologies programmer developed code relating to data storage while still a UBS employee, but the high-frequency trading start-up did not use it, CIO William Sterling has told a Chicago judge.
Teza hit the headlines in July when a computer programmer it hired, Segey Aleynikov, was arrested by the FBI, accused of stealing proprietary trading code from previous employee Goldman Sachs.
Aleynikov denies the allegations and his case is pending in Manhattan federal court.
Teza was set up by Citadel's former head of high-frequency trading, Mikhail Malyshev, and two of his colleagues at the firm, Jace Kohlmeier and Matthew Hinerfeld.
Citadel says it only learned about the new firm after Aleynikov's arrest, prompting the hedge fund to sue Malyshev, Kohlmeier and Hinerfeld.
It is asking for an injunction against the men for violating their non-compete agreements and is also seeking $300 million in damages from the defendants, according to Dow Jones.
Citadel raised the spectre of code theft, claiming in its original complaint that "Teza's decision to hire Aleynikov, an accused software thief, creates a substantial risk that they have stolen, or may be planning to steal, Citadel's proprietary code".
Now Teza says a former UBS employee wrote code on his own time after he had given the Swiss bank notice that he was leaving. At the time he wrote the code in his own home, he was technically still a UBS employee however he was no longer allowed in the office and had no access to any UBS systems.
Sterling, who also joined Teza from UBS, says that despite this, the code was not used.
Teza had planned to start for-profit trading on 1 December but Sterling says the legal issues it is facing means this is now unlikely.
Teza's Programmers Uploaded Unwanted Code, Judge Told - Bloomberg