A once in a lifetime trading system designed to make everyone using it rich has instead became the center of a flurry of lawsuits with allegations of backstabbing, fraud, breach of contract, and misuse of funds in a story akin to the movie, Wolf of Wall Street.
According to several interviews and an analysis of nearly a dozen civil lawsuits, Stuart Simonsen, of Billings, Montana, a trader who formerly worked at Brevin Howard was first introduced to a predictive software developed to trade a wide variety of securities by Lyle Vaden, a Chicago area computer programmer with a unique affinity for mathematics.
Simonsen and Vaden made a business arrangement whereby Simonsen would help Vaden sell the system, called Jarvis Trading Systems, to a deep pocketed hedge fund or other investment firm and they’d split the profits equally.
In 2003, Simonsen was introduced to Tony Demasi, a Chicago attorney, who had recently started a hedge fund, Tsunami Capital; Demasi later became an entrepreneur opening up two of Chicago’s most popular nightclubs, Reserve and Crescendo.
The two developed a business relationship; Demasi told The Industry Spread that it was his understanding that Vaden was Simonsen’s programmer.
According to Demasi, the business relationship was a partnership with Demasi introducing Simonsen to deep pocketed private capital firms and hedge funds willing to fund the trading the system; meanwhile Simonsen claimed Demasi was leasing the system to trade in his hedge fund; both agree Demasi paid Simonsen over $100,000 monthly for the relationship.
In late 2006, Chicago hedge fund Tradelink agreed to fund the system with an initial investment of $5 million million dollars but with an option increase their investment exponentially if the results matched the promises made.
About six weeks after Tradelink first started trading the system, Demasi was sued by the Commodities Futures Trading Corporation (CFTC); the CFTC alleged that his hedge fund recorded trades on its financial statements which weren’t executed.
At the CFTC hearing, Demasi argued that his investment in the system would make all his investors whole but then Simonsen pushed back arguing “we never had a deal”, that the contract “had his signature forged,” according to Demasi’s recollections.
Demasi produced as evidence of a partnership: text messages, emails, phone records, even a phone recording but Simonsen’s case was bolstered because Demasi could not produce any original signatures, only copies.
For about a year, a judge in Chicago, having reviewed this evidence, froze the trading profits before Simonsen successfully had the case moved to Montana where a judge in that state unfroze the assets and awarded them to Simonsen.
In 2009, the US Attorney’s Office for the Northern District of Illinois charged Demasi with a series of crimes related to his false financial reports; Demasi was sentenced to five years in prison and released in 2013.
Tradelink has never testified or spoken publicly about the nature of the relationship; a filing in a separate case suggests Tradelink continued using the system to trade until at least 2012.
In September 2007, Tradelink terminated its relationship with Simonsen for cause “on the bases that Simonsen had allegedly marketed and licensed the trading software to others in violation of the Trader Agreement, that he had allegedly divulged confidential information to others, and that he had allegedly misrepresented his educational background to Tradelink,” according to same filing in the separate case.
An email to Tradelink’s investor relations department was left unreturned.
In 2009, Simonsen met an investment group in New York called Kaga Investments. Simonsen, using a Limited Liability Corporation he created called Soren Niels Management, entered into an agreement to start a hedge fund called Axiodyne along with Kaga.
According to Tony Birbilis, one of the investors in Kaga, Simonsen introduced Vaden as his programmer and Simonsen presented himself as the creator of the system.
Through Kaga, Simonsen was introduced to a New York investor, Frank D’Amato. D’Amato, according to a lawsuit filed in 2013, made an initial investment of $500,000 to trade the system in the system.
D’Amato, per the same lawsuit, then added one million dollars to be a shareholder in the newly formed hedge fund; it was D’Amato’s understanding along with the members of Kaga that the system would be traded exclusively by the newly formed hedge fund.
D’Amato received a 1.5% share of the hedge fund with his investment and valued the system at approximately $100 million.
Unbeknownst to D’Amato and Kaga, per the lawsuit, Simonsen leased the system to three other entities: Krohne Funds, BDS Quant, and Transcend, and each of these entities have since sued Simonsen; Simonsen also used the software to trade on the Korean Stock Exchange, according to the same lawsuit.
D’Amato sued for breach of contract, arguing that he only invested a million dollars as a shareholder in the fund because he believed this fund would be the exclusive place where the system was traded.
BDS Quant accused Simonsen of “breach of a settlement pertaining to the use of the intellectual property,” per D’Amato’ lawsuit.
Simonsen sued BDS Quant in a separate action.
Transcend accused Simonsen of failing to pay back a claw back. Simonsen had pocketed a commission during positive months but failed to pay back some of that commission when the account fell into the negative in subsequent months.
Krohne Funds accused Simonsen of causing losses by failing to follow the system’s parameters which set strict stop losses in trades.
Emails to lawyers representing Transcend, Krohne, and D’Amato were left unreturned.
Then, in 2013, Vadem sued Simonsen, not for misrepresenting who created the system, but for breach of contract, Vadem argued that Simonsen misrepresented the value of the contracts Simonsen had signed.
But Birbilis said Simonsen may have taken more than Vaden’s share of profits.
“Once I spoke to Vaden, it was amazing how much of Simonsen’s persona matched Vaden’s.” Birbilis said.
Birbilis first found out that Vadem created the system after discovery in his lawsuit showed a line item to Vadem far more than what he expected a programmer to make.
Vaden, Birbilis said, was a math genius who could intuitively see trading patterns, something Simonsen presented of himself.
Demasi also remembered Simonsen as a math genius with obsessive compulsive tendencies but doubted this could be a persona.
“That would mean he’d be on all the time,” Demasi said.
Both said Simonsen was proficient with the system and could explain it to people, both experts and laymen.
Kaga Investments sued Simonsen in 2013, arguing that they lent him money for use in starting up the fund but that this money was misspent and proper accounting was not provided.
“Kaga investments also sued Simonsen in 2013, accusing him of misuse of funds. As part of Kaga’s capital contribution to AxioQ, Kaga assigned the right of repayment of the Simonsen Loan to AxioQ,” according to a complaint filed in federal court in New York, “and Subsection 4.4(d) of the AxioQ Agreement (dated February 16, 2010), acknowledges that Simonsen owes $852,485 remaining on the $950,000 initially due on the Simonsen Loan.
“Upon information and belief, Simonsen has not repaid any part of $852,485 due under the Simonsen Loan, and this amount, together with unpaid interest, remains outstanding.”
The total amount of the suit exceeds $4 million, according to Birbilis.
In 2014, both BDS Quant and Vaden won default judgments- meaning Simonsen failed to show and defend himself- in Chicago- BDS Quant’s settlement was for $24 million, according to public documents, and Jonathan Herpy Jr., Vaden’s attorney, said Vaden’s settlement was for $13.9 million.
Mark DeSouza, principal of BDS Quant, filed suit against Tradelink in a separate action; Herpy declined to comment on whether or not Vaden has any other lawsuits outstanding.
DeSouza did not respond to a voicemail for comment; Simonsen also sued BDS Quant though it’s not clear what the outcome of that case was.
Shortly after the judgments with Vaden and BDS Quant were entered, Simonsen filed for Chapter 7 bankruptcy protection back in Billings, Montana.
This action caused a stay- a pause- in all other outstanding actions.
When reached by text message, Simonsen downplayed the lawsuits, “All of the lawsuits are over accept (sic) Krohne appealed my victory.”
But according to the Public Access to Court Electronic Records (PACER) the most recent event in the D’Amato lawsuit was a status conference on September 27, 2016, and there is no record of any decision.
The last disposition of the lawsuit initiated by Transcend was a $606,475.05 judgment in favor of Transcend entered against Simonsen on August 7, 2013, according to PACER.
Birbilis also told the Industry Spread that his lawsuit with Simonsen has yet to be settled.
“A judge has not heard any arguments yet,” Birbilis said.
Krohne’s case was dismissed and is currently in appeal with a court hearing scheduled in 2017, as Simonsen stated.
Simonsen said judgments with Vaden and BDS Quant have been settled but, “The settled one are confidential. Not at my request but the other parties.”
The Industry Spread could not independently verify if settlements have been reached in those cases and Herpy declined to comment.
“There are no winners here,” Birbilis bluntly stated of what’s transpired surrounding the system.
After spending a decade in finance, Michael Volpe has been a freelance investigative journalist since 2009. His work has been published locally in the Chicago Reader, Chicago Crusader, Chicago Heights Patch, and New City. Nationally, Volpe’s work has appeared in a wide variety of publications including the Washington Examiner, the Daily Caller, Crime Magazine, the Southern Christian Leadership Conference Newsletter, and Counter Punch. Volpe has been recognized by whistleblowers as leading the charge in getting their stories out. His first book Prosecutors Gone Wild was published in October 2012, his second book The Definitive Dossier of PTSD in Whistleblowers was published in February 2013 and his third book Bullied to Death was published in August 2015.