Blog Criminal Defence 20th Jan 2017

Orlando Pownall QC represents jailed city worker Ke Xu accused of “deliberately” refusing to surrender seized software worth millions of pounds

Orlando Pownall QC represents Ke Xu, in Trenchant Ltd. Corbiere LTD Trenchant Employment LTD v Ke Xu. The Former City Analyst was acquitted of 3 counts out of a 5 count indictment and received 18 months’ imprisonment, it having been found that he had a reasonable excuse for not handing over copies of confidential intellectual property taken by him. He was sentenced to 18 months’ imprisonment on the basis that, although he originally had copies, they had since been destroyed.

Ke Xu was a quantative analyst employed by Trenchant, a hedge fund. In June 2015 he pleaded guilty to the theft of confidential intellectual property from his employers. He was sentenced to four years’ imprisonment. A Serious Crime Prevention Order was made which required him to reveal the whereabouts of any computer on which the CIP was stored and to provide all copies made of such material. It is the prosecutions case that he has failed to do so and has no reasonable excuse for this failure.

Ke Xu was employed as a quantative analyst (Quant) employed by the Trenchant Group, a hedge fund run principally for the benefit of Peter de Poutron. Xu was born in a small town in China and it soon became clear that he had an extraordinary mathematical brain. He won a scholarship to The Raffles School in Hong Kong and from there he went to Trinity College, Cambridge where he got a starred First in mathematics.

Having spent some time with Goldman Sachs dealing with structured debt management, he joined Trenchant as a Quant in 2012. Quants write signals or algorithms for use on a computer based trading platform. In his first full year of employment, Xu wrote a number of successful strategies which earned his employers about £20m. Unfortunately, in 2014 he decided that he wished to return to Hong Kong and decided to copy signals written by fellow quants in order to use them on the infrastructure of any future employer and thereby earn himself greater commissions.

For obvious reasons, security at Trenchant is very tight. Quants are not allowed to view the signals of others which were kept in a repository having been ‘compiled’ into a code that could be read by a computer and then ‘obfuscated’ in such a way that prevented anybody from reading them.

It was alleged that Xu used remote access to his work computer from home. Using the VPN ( virtual private network) he brought up the codes written by  his colleagues and reverse engineered them by a process of  ‘decompiling’ and ‘deobfuscation’ using software he had written himself called ‘Dot Test’. Because VM Ware was installed on the host office computer, Xu was unable to make copies of the codes. It was the prosecution case that Xu took screenshots on his home computer which he then converted into readable form using optical recognition (OCR).

In 2014 he left the country and flew to Hong Kong. He did not give his employers advance notice. In due course he was detained and eventually returned to the UK where he was charged with fraud by abuse of position.  He pleaded guilty in June 2015 and was sentenced to a term of 4 years’ imprisonment.  The value of the signals viewed by Xu was put at many millions of pounds.

The sentencing court also made Xu the subject of a Serious Crime Prevention Order (SCPO). The order contained a number of obligations and prohibitions. Trenchant had been unable to recover any computers used by Xu when in this country prior to his departure.  In an affirmation to his supervising solicitor in Hong Kong, he claimed that his parents and in-laws had taken them back to China after his wedding in late July 2014, shortly  before he left the country. The SCPO ordered Xu to reveal, within 56 days, the whereabouts of his computers and other electrical equipment; to disclose the names of those who had access to the computers and to hand over all copies of Confidential Intellectual Property (CIP) that he held or which was in his control. There were many other obligations such as a prohibition on seeking employment with or contacting a number of Trenchant‘s competitors. He was not allowed to use a computer without the prior written agreement of a member of the Lifetime Offender Management Unit (Lomu).

Following his sentence, Xu’s solicitors informed the authorities that their client had not kept copies but, in any event, the computers were in The People’s Republic of China with Xu’s parents.

Xu was entitled to release in or about November 2015 pursuant to the early release provisions applying to foreign nationals. Trenchant made representations to various authorities and the then Home Secretary Theresa May, seeking to prevent his release until he had served the full term of 4 years. They also sought to impose conditions upon his license.

It would appear that the CPS were fairly indifferent about whether or not to bring proceedings under the Serious Crime Act 2007. In the event, Trenchant decided to bring a private prosecution. The Trial began on the 12th December 2016.  It was not until the 9th that the CPS indicated that they had considered the papers and concluded that the case passed both the evidential and public interest tests.

By their verdicts, the jury concluded that Xu had or may have had a reasonable excuse for not handing over copies of any codes copied by him. It was the defence case that no copies were made and that in any event, most of the computers had, without his knowledge, been thrown into the Yangtze River. Another computer had been burnt as part of a burial ritual following the death of a cousin.

Xu was however convicted on twofold the five counts on the basis that copies were made and he should have told LOMU that the computers had been,  for a short  time, in the possession of his wife and  his in-laws and further that he should have told LOMU that one computer had been given to a cousin and another to his nephew.

The case raised a number of interesting issues. First, should there have been a private prosecution in circumstances where the original proceedings had been brought by the CPS and where the prosecution undoubtedly had a very real conflict of interest. Trenchant was desperate to ensure that Xu remained in custody for as long as possible as they feared he retained control over the computers and intended, upon his release, to use them to their prejudice. In my view, galling though it  was to be prosecuted by no less than  two Silks and one junior I was and remain of the  opinion that an application for judicial review of the decision of the CPS not to prosecute would have failed. It may be that Trenchant will persevere in their attempts to prevent Xu’s early release and or his license conditions. In my judgment, if they do, such attempts would be ill judged.

The jury having found that the computers might have been destroyed, consideration will have to be given to the question of benefit for the purposes of confiscation. No rider has yet been made and it might be argued that, at the very least, it would be disproportionate to find a benefit where there is no evidence of actual benefit and where the signals have been destroyed. They represented a dwindling asset, as their performance reduces after about 5 years.

A further issue that arises is as to whether a SCPO should ever have been imposed in the first place. The provisions apply where there is a need to protect the public from serious crime committed in the UK. There may be a respectable argument that upon the evidence there was no risk that Xu would have committed a serious offence in this jurisdiction. The prosecution case was that the signals would be used abroad by foreign traders on international markets.


Orlando Pownall QC
2 Hare Court

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