Ken Griffin's Citadel sent a heated letter to the board of E-trade today to tell the company that it has "squandered" a "phenomenal franchise."

Citadel's Adam Cooper writes that E-trade is still burdened by a “disastrous foray” into mortgage-related securities and reminds the company that it was saved after plunging 58% in one day by a $2.5 billion cash infusion led by Citadel.

The hedge fund, a big shareholder, aggressively calls for three changes, outlined below in the letter. 

The letter is below.

Dear Steve:

This letter is written on behalf of affiliates of Citadel LLC (together “ Citadel ”) which beneficially own approximately 9.8% of the common stock of E*TRADE Financial Corporation (the “ Company ” or “ E*TRADE ”). Citadel has been the largest shareholder of E*TRADE since late 2007, when we led a $2.5 billion cash infusion into the Company, saving E*TRADE from near certain failure.

Since November of 2007, the Board has continually failed to act in the best interest of E*TRADE shareholders. Having endured nearly four years of value destruction and lost opportunity, we believe it is time for change. E*TRADE shareholders have waited long enough.

A Phenomenal Franchise….Squandered

E*TRADE is one of the most recognized and popular online brokerage firms in the industry. It consistently receives high marks for its trading platform, customer service and usability, and has benefited from strong customer loyalty. (1) Yet, despite a powerful brand and excellent products, under the stewardship of E*TRADE’s Board the Company has lost money every year since 2006. The stock has declined a stunning 94% over the last five years, destroying more than $9 billion in stockholder value.

E*TRADE’s stock price continues to be burdened by the Company’s disastrous foray into securitized mortgage-backed securities and third-party originated home equity loans – initiatives that materially contributed to pre-tax cumulative losses which now exceed $5 billion since the beginning of the fourth quarter of 2007. Beyond those missteps, the Board has repeatedly failed to position E*TRADE to compete effectively against peers that are better managed and capitalized.

And the Responsibility Rests with the Board

The current E*TRADE Board has demonstrated it is consistently unable to create value for shareholders. A quick review of the Board’s repeated failure to address key issues before they reached crises levels is instructive.

On November 12th, 2007, amid announcements of massive write-downs from the Company’s failed mortgage investments, E*TRADE’s stock dropped by more than 58%. In the ensuing panic, customers withdrew billions of dollars of cash and other assets from E*TRADE’s bank and brokerage business. To stop the panic and avoid near certain failure, the Company secured a $2.5 billion cash infusion led by Citadel.

However, the Board failed to address the Company’s still weak capital position. The Board failed to follow through on a much needed equity raise when market conditions were favorable. The Board’s continued inaction over the next year and a half led to the Company being advised that there would be a public regulatory action 2 unless E*TRADE raised additional equity capital and reduced debt levels and debt service payments.

Only when confronted with this regulatory action did the Board finally act, with Citadel again stepping forward in 2009 by making a public commitment to invest up to $100 million in E*TRADE’s common stock. In addition, Citadel led the exchange of interest bearing notes for non-interest bearing convertible debentures, whereby $1.74 billion of the Company’s interest-bearing debt was extinguished. E*TRADE ultimately raised more than $500 million in a highly dilutive stock offering in June 2009.

The facts speak for themselves - stunning losses for the Company, catastrophic losses for the shareholders. This is the story of E*TRADE’s poor management decisions. It is not, however, the story of the financial outcome experienced by Board members. Half of the current Board members (Ronald Fisher, Michael Parks, Lewis Randall, Donna Weaver and Stephen Willard) share the remarkable distinction of having presided over the Company’s catastrophic mortgage loan investment strategy. Since 2006, these Board members have received $7 million in aggregate compensation from E*TRADE.

Time to Put Shareholders First

E*TRADE’s Board must take immediate action to consider how best to maximize shareholder value. We urge the Board to retain qualified, independent and unconflicted financial advisors to explore strategic opportunities in the interest of increasing shareholder value. We believe a sale of the Company could be achieved promptly and generate significantly higher shareholder value, avoiding the risks of operating as an independent company lacking leadership and financial capabilities.

It is also time to move toward a Board that is accountable and responsible. With the departure of Robert Druskin as Chairman of the Board and one other Board member, the Board has the opportunity to fill vacated seats with qualified, independent, objective candidates who are not tainted by the Company’s past and ongoing management failures. The Board should seek nominations from its largest shareholders in an effort to secure talented leadership that is committed to the best interests of all shareholders.

Furthermore, E*TRADE should eliminate its staggered board structure which encourages entrenchment and shields poorly performing directors from accountability. Staggered boards have for good reason fallen into disfavor in corporate board rooms across the country and it is inexcusable that E*TRADE shareholders are not permitted to elect the entire Board annually in order to align the interests of management and the Board with those of shareholders.

E*TRADE has reached a pivotal moment where decisive action can be taken to generate value for all shareholders.

We do not believe the current Board will take these steps on its own. Accordingly, Citadel hereby requests that the Company promptly call a Special Meeting of its shareholders in order to consider and vote on the following critical matters aimed at maximizing value for all shareholders and increasing Board accountability:

1.A non-binding advisory shareholder resolution that a Special Committee of the Board, comprised of Directors who have joined the Board within the past three years, promptly retain the services of a nationally recognized investment banking firm that has not previously advised the Company or the Board to undertake a review of its strategic alternatives in order to maximize shareholder value, including a possible sale of the Company.

2.An amendment to the Company’s certificate of incorporation to remove the existing staggered Board provisions to give shareholders a meaningful voice in choosing the Company’s future.

3.The removal of Michael Parks and Donna Weaver as Directors of the Company and the election of qualified independent director replacements.

If the Company fails to call for a Special Meeting of shareholders by close of business on July 22, 2011, Citadel will submit the attached notice with respect to its approximately 9.8% ownership interest in E*TRADE’s common stock in favor of calling a Special Meeting of shareholders to consider the topics set forth above.  Pursuant to the Company’s certificate of incorporation, the Company will be required to call a Special Meeting once holders of more than 10% of its outstanding common stock request such a meeting. We urge other shareholders who independently share our views to join in this request by also sending this notice to the Company.

We believe it is time for E*TRADE’s shareholders to come first.

As always, we remain available for further discussion of these very important issues and look forward to hearing from you soon.

Very truly yours,

Citadel LLC

Adam C. Cooper

Title: Senior Managing Director and Chief Legal Officer

1 See J. Alex Tarquinio, “ The 2011 Broker Survey: Who Tops the List? ”, SmartMoney, May 6, 2011 (5 stars for Trading Tools); Elizabeth Ody, “ The Best of the Online Brokers for 2011 ”, Kiplinger’s Personal Finance, February, 2011 (5 stars for Web Site Usability and Customer Service).

2 “We face negative regulatory actions, including a public form of supervisory action by the Office of Thrift Supervision, or OTS, if we do not raise sufficient new cash equity to support E*TRADE Bank and reduce debt at the Company.” E*TRADE Prospectus Supplement, June 18, 2009 at S-15.

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Citadel Securities was Ken Griffin's big dream -- he wanted to make the next Goldman Sachs.

Three years later, word is that he's all but dismantling the firm. But it's been a long time coming.

At its launch in 2008, Citadel Securities received glowing reviews from the business press heralding Citadel Securities the next big thing in investment banking.

Citadel Securities will be “one of the great sales and trading operations” within five years, Griffin said in a September 2009 interview.

But his efforts have been plagued with mass turnovers at the top levels of the business' executive management, among other challenges that it's now evident Citadel Securities was unable to overcome.

Good thing Griffin has already had a mid life crisis. 

A young superstar, Griffin founded his hedge fund, Citadel, when he was 22.

In 1990, Griffin founded Citadel. He had started trading at a very young age, and started becoming successful while he was still at Harvard.

After much success, he decided to expand and in 2008 founded Citadel Securities, an investment bank.

The financial press jumped all over Griffin's new investment bank, calling it the next big thing.

Griffin believed all signs pointed to it's rivaling Goldman Sachs within the next 5 years.

And it looked like he could do it, too. Until...

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As part of Ken Griffin's move to shut down most of his dream investment bank, Citadel Securities, he recently axed Jaine Mehring's entire research team.

Mehring, the former head of human capital management and development at Citadel Securities, isn't alone in her jobless-ness.

More layoffs are expected at Citadel, which is in talks to sell its investment banking unit.

From Bloomberg:

"[Citadel Securities is] also firing employees elsewhere in the investment bank, the people said."

Mehring's lay-off from Citadel probably isn't as much an indication of her work as it is of the notoriously high turnover at Citadel Securities. 

While it is unclear what her next career move will be, she does have quite a long list of accomplishments under her belt:

• She holds a degree in English from Yale.  
• She got her MBA from Cornell, according to her LinkedIn.
• She was the global head of human capital management for the equities division at Lehman Brothers/Barclays Capital. 
• Her career began in 1988 as a research associate for Sanford Bernstein covering the beverage and tobacco sector.
• At Prudential Securities in the early 90s she worked as a specialty chemicals analyst 
• At Salomon Smith Barney she was a specialty chemical analyst, then she got promoted to managing director and became a U.S. food analyst.  
• She believes food stocks could withstand an economic downturn: "Food stocks are viewed as 'classically defensive,' meaning that the earnings hold up well across a dip in the economy, across a recession," Mehring said.

What's more is Mehring was consistently named a top-tier analyst by Institutional Investor and Greenwich Associates.

Beginning in 2002, she was working for Citigroup.  In 2005, when Citigroup's head of research, Johnathan Joseph, left the firm Mehring was considered a likely successor, according to a Wall Street Letter (PDF).  However, she did not receive the position, but she did work at as associate director of research.

Click here to read more about the i-bank shut down and layoffs at Citadel >

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Citadel Securities's former investment banking co-head Brian Maier and about 2 dozen others went to Wells Fargo after Ken Griffin gave up his dreams of running the investment bank.

The fixed income guys might be going to SocGen.

Wells Fargo CEO John Stumpf is said to be trying to expand the investment banking unit that he acquired with Wells' Wachovia takeover, so he and Griffin made a deal for Wells Fargo to "buy" Citadel Securities investment banking business.

The deal includes the former employees and the uninterrupted transfer of Citadel’s “related investment-banking business,” according to a PR statement (embedded below).

The employees going to Wells Fargo:

• Paul Pepe: leading a newly formed corporate finance team, reporting to Weiss and investment-banking co-head Rob Engel
• Stavros Tsibiridis: leading parts of the mergers-and-acquisitions practice, including the corporate-defense advisory practice
• Stephen Gerson: working in financial technologies banking
• Aviv Laurence: working in gaming and leisure

WFS Hires Bankers From Citadel_PR_FINAL

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Citadel fired one of its newest employees today after allegedly discovering that he was speaking to rival firm Teza Technologies, the firm founded by Mikhail "$150 million in 2008" Malyshev.

Malyshev and Citadel have been in legal dispute for years now. When Malyshev and a colleague left Citadel in February 2009 to start their own fund, Citadel founder Ken Griffin sued him, arguing that he signed a non-compete. (Malyshev had made Citadel over $1 billion in 2008, taking home $150 million for himself, according to legal complaints.)

Now Citadel says it has phone records proving that one of its employees, a young engineer, spoke recently with Teza Tech.

Yihao Ben Pu, a 23-year old quantitative financial engineer, was hired last year to install programs on Citadel’s systems to get around security measure meant to prevent the transfer of data to other devices, according to Crain's read of Citadel's complaint against him.

But Citadel soon found that Pu used the security bypass to transfer "massive amounts of highly confidential" information about the firm’s tactical trading business to “at least two personal external devices,” says the complaint.

The firm also discovered that he has been in recent contact with Teza, according to the complaint. 

Pu told Crains that what he did was more or less for work, and that he gave the personal devices to Citadel without being asked to. He also says that he was in contact with Teza because he was asking about hiring a lawyer. He says he thinks Citadel is "overreacting" and he hopes they can put this behind them soon.

Pu graduated from Cornell in 2009. He interned as an analyst for Kane Capital Management, and later worked atPalantir Technologies and Tradeworx.

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Ken Griffin's Citadel is having a good year.

His Kensington/Wellington fund is up 15% YTD after rising 1% in August. His Global Equities fund is up 14% YTD after gaining 1.16% in August.

This is good news after Griffin folded the other side of Citadel, Citadel Securities. 

Click here to see how other hedge funders are doing this year >

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We got a tip from a reader that says that the rest of the Citadel Securities fixed income team was let go today.

He says at least one person has already been let go.

We're not surprised, because Ken Griffin has been shutting down the entire unit since at least early August, so layoffs are inevitable.

Word is some of them (traders, sales people) will go to SocGen.

Other members of the Citadel Securities team on the investment banking team have reportedly been hired by Wells Fargo.

If you've heard anything, email Courtney. (It's anonymous - so is our tip email.)

Don't miss: More on the fall of Citadel Securities >

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Ken Griffin's hedge funds are up 15% this year - and, his main funds didn't lose money in September.

Despite the S&P tumbling more than 7.18% for the month, while the global markets fell broadly, according to Institutional Investor [via Dealbreaker]:

[Griffin's] main hedge funds were up 0.25% in September, putting them up by about 15.10% for the year, according to sources, making them among the best performers this year.

Griffin's stellar September performance was thanks it part to the fund's global equities strategy, which was up about 2.35%, Institutional Investor reported citing unnamed sources.

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Speaking at Fortune's Most Powerful Women Summit, Goldman's Lloyd Blankfein said he sees Warren Buffett a source of "wise counsel to policymakers" and told the Oracle of Omaha to "keep taking my calls."

Clearly September annihilated hedge fund returns.

Bank of America has decided to suspend all cash-out refinancings on FHA and VA loans, according to a product update notice provided to National Mortgage News.

The nation's big banks could see billions in increased costs if the Federal Housing Administration issues fines on insurance claims that result from soured mortgages, FBR Capital Markets said this week.

Douglas Grossberg, a Credit Suisse Group loan trader who helped create a market for derivatives tied to the debt, left the Swiss bank last month even though it hasn't been publicly announced.

Galleon founder Raj Rajaratnam, who's been convicted of insider trading, is expected to plead to a judge today that he doesn't deserve 25 years in prison because he only made $7.5 million from his insider trades.

The rumors circulating about a big hedge fund blow up at Salida Capital were "unfounded" the firm's chief executive officer Courtenay Wolfe said.

Some investors who were bilked by Bernie Madoff's ponzi scheme will start to get some of their money back.

Sen. Dick Durbin wrote a letter to Bank of America's chief executive Brian Moynihan telling him to quit his whining about card fees and to consider giving back his $9 million bonus to customers.

Richard R. Baxter, who previously worked for Cabrera Capital Markets as head of taxable fixed income, has been named head of agency trading and will work out of Gleacher's New York office.

Japan-based Mizuho Securities hired Yasuo Agemura from Nomura to head its global markets business.

Peter Westaway, the chief Europe economist at Nomura, has resigned.

Angela Merkel's chief of staff, Robert Pofalla, told a CDU parliamentarian, "I can't look at your fat face anymore.  All you say is s***."

Barclay's latest round of cost-cutting efforts include car service and late night snacks.

Barclay's midtown Manhattan offices had a terrorist scare this morning thanks to a suspicious vehicle parked outside the firm.

Deutsche Bank is expected to axe 500 positions mostly outside of Germany.

Ken Griffin's main hedge funds are up 15% YTD and did not lost any money during the month of September.

Seriously!? Bank of America's website is down for the third day.

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Sterne Agee & Leach hired a 10- person team from Citadel's securities unit to trade high-grade credit.  The new hires are Andrew Rochat, Jon Walker, Scott Shiffman, Michael Rand, Andrew Simons, John Finnegan, Mac Sutherland, Helen Shannon, Bobby Treacy and Allen Oppici.

A man was thrown in jail for punching a cop at a Wall Street protest.

The New York comptroller expects 10,000 layoffs to hit Wall Street now through December 2012.

Barack Obama's re-election campaign is looking to hire some quants.

John Paulson said the Occupy Wall Street protesters need to stop vilifying "our most successful businesses."

Occupy Wall Streeters later left a present of a novelty tax cut check made out for $5 billion on hedge fund manager Paulson's doorstep.

New York City's Mayor Michael Bloomberg said yesterday that the Occupy Wall Street protesters are unfairly blaming "hard working" people on Wall Street.

Some Wall Street bankers were told not to poke fun at the Occupy Wall Street demonstrators.  Others have told us they joke around casually, but no one at their banks think it's a big enough deal to require guidelines about how to interact with the protesters.

The New York Observer has put together a slideshow of the Occupy Wall Street's "Zuccotti Hotties."

Hedge fund asset levels are back above 2006 highs.  The industry's assets rose 6.7% to $2.16 trillion in the first half of the year, which is more than in 2006, but less than its pre-credit crunch peak in 2007, when assets briefly topped $2.6 trillion.

Hedge fund Longacre Fund Management, which once had a peak of $3 billion AUM pre-financial crisis, told investors yesterday that it's closing its flagship funds.

Economist Nouriel Roubini is reportedly selling his namesake firm Roubini Global Economics, which is also losing money.

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Federal authorities arrested a former Citadel employee on allegations that he stole trade secret information from the hedge fund, the New York Times reported.

Yihao Ben Pu, 24, a former technology employee at Citadel, has been charged stealing stealing information from the hedge fund's trading systems.

From the Times:

Authorities contend that Mr. Pu, hired as a quantitative engineer at the firm last year, illegally uploaded sensitive information about Citadel’s computer-driven trading strategies to personal devices in August before attempting to destroy the evidence.

The reminds us of the trade secret theft executed by programmer Sergey Aleynikov, who used to work for Goldman Sachs writing algorithms. 

Aleynikov was found guilty of stealing Goldman's high-frequency proprietary trading algorithms.  He was sentenced in December to 8 years.  

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You'll remember that Yihao Ben Pu, the 24 year-old former quant engineer at Citadel, was arrested last month for attempting to steal confidential information from the hedge fund's trading systems.

Brief refresher: the ex-tech employee at Ken Griffin's Citadel was charged with stealing the secret alpha codes and transferring them to external devices, ABC WLS in Chicago reported.

Well, in the case against him, a remarkable detail about how authorities found the evidence to arrest him has emerged.

From ABC WLS:

He was arrested after an associate of his told the company and federal agents some of the evidence had been dumped into a sanitary canal near Wilmette Harbor. Divers discovered computer equipment in the water that contained Citadel's alphas.

First of all, that sounds like a scene out of a James Bond movie. 

Second, water didn't damage the info on the hardware? Guess that's why Zvi Goffer's genius methods of destroying a tainted cell phone didn't work.

And third, how did the former Harvard research intern and Cornell graduate manage to be all smiles when he appeared in court?

Clearly the court system and/or Citadel is going after him hardcore.

And, during that court appearance, he had to agree to put his family home in Massachusetts up as bond. 

This case reminds us of the trade secret theft executed by programmer Sergey Aleynikov, who used to work for Goldman Sachs writing algorithms. 

Aleynikov was found guilty of stealing Goldman's high-frequency proprietary trading algorithms.

He was sentenced in December to 8 years.  

If you haven't learned by now, after you've seen the efforts that their former firms launched against Aleynikov, Samarth Agrawal, and Mikhail Malyshev, that firms with proprietary trading info are paranoid about people stealing it and will go to dramatic lengths to not only recover it, but prosecute the crap out of you, we suggest you learn it now. 

Don't miss: The U.S. Court system decides it's worse to steal algos from Goldman than to kill someone >

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Formula One's chief executive Bernie Ecclestone confessed in court that he bribed a former BayernLB banker named Gerhard Gribkowsky to stay quiet and keep tax officials at bay while acquiring the rights for his auto racing sport five years ago.

Former Merrill Lynch chief John Thain, who's currently the head of CIT, and his wife Carmen underwrote the restoration of the 50-acre New York Botanical Garden in the Bronx.  The area has been named the Thain Family Forest.

Credit Suisse Group Japan CEO Paul Kuo will step down on January 1 and will be replaced by Olivier Thiriet, who currently heads the Swiss bank’s Asia- Pacific cash equities operations.

Disgraced Galleon chief Raj Rajaratnam, who was sentenced to 11 years for organizing one of the largest insider trading circles in history, was slapped with a massive $92 million civil penalty yesterday.

The Justice Department is not investigating the role former SEC lawyer David Becker, who was allowed to participate in discussions about the compensation of victims of Ponzi schemer Bernie Madoff even though he had a financial interest in the result.

Hong Kong's chief executive Donald Tsang told Pershing Square's Bill Ackman, who's betting on the $HK appreciating, to piss off, and said that the hedge fund manager will "lose a lot of money."

MF Global employees are coming to the office in much more formal attire than usual.  That's because they're going on job interviews elsewhere when they're not conducting liquidation trades. 

Ken Griffin's Citadel's Kensington and Wellington funds were up 2.32% in October and 17.67% YTD.

Speaking of Ken Griffin, here's his business card. 

Michael Blum, a German national and the COO of Hedgeye Risk Management, has booked two trips to outer space.

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Ken Griffin said today in a letter to investors that Citadel has recovered from the nearly crippling losses the firm suffered in 2008, Dealbook is reporting.

Griffin said Citadel's two flagship funds were up more than 20% in 2011 and had recovered from the almost 50% drop they suffered at the height of the financial crisis.

This is good news not just for investors, but also bodes well for Citadel's chances of survival.

With their funds below their so-called highwater mark, Citadel has been unable to collect performance fees. These fees, the industry standard is 20% of all gains but are commonly higher at funds such as Citadel, are the lifeblood of hedge fund earnings. 

Here's the full letter, also available here:
 

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Shares of drugmaker Vivus skyrocketed today after an FDA panel gave a favorable review for the company's weight loss pill.

The stock was last up more than 88% in late morning trading.

That's good news for a bunch of hedge fund managers who have a significant stake in Vivus. 

Here are the top ten hedge funds with the biggest positions in the drugmaker, according to data compiled by Bloomberg.

1.  Chilton Investment: ~8.62 million shares (9.7%)

2. QVT Financial LP: ~8.53 million shares (9.59%)

3. OrbiMed Advisors: ~6.16 million shares (6.94%)

4.  Caxton Associates: ~5.25 million shares (5.91%)

5. Suttonbrook Capital: ~5.05 million shares (5.68%)

6.  Passport Capital: ~4.29 million shares (4.83%)

7.  Citadel Advisors: ~1.85 million shares (2.08%)

8.  Severn River Capital: ~ 1.29 million shares (1.45%)

9.  D.E. Shaw & Co.: 645,633 shares (0.73%)

10.  SAC Capital: 538,400 shares (0.61%)

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March 10--In an interview with the Chicago Tribune, billionaire hedge fund operator Kenneth Griffin, CEO of Chicago-based Citadel, says that he is opposed to building a downtown casino, is critical of corporate leaders who have "groveled" for tax breaks and says that he's "terrified" the country is headed in the wrong direction.

"I spend way too much of my time thinking about politics these days because government is way too involved in financial markets these days," he said in a rare interview. He later added. "Part of my sensitivity to these issues is that I now live in the middle of a hyper-regulated industry, where not only is government affecting how capital markets work, or how banks work, but (the government) is punishing savers."

The 43-year-old hedge fund manager said he has invested more time than ever before on politics since the financial crisis of 2008 nearly crippled Citadel. The firm's two flagship funds have since recovered, surpassing their so-called highwater marks this year.

Forbes magazine recently ranked Griffin Chicago's second-wealthiest citizen, behind only Tribune Co. chairman Sam Zell. Griffin's interests are vast, from collecting art to improving the city's public education system. Over time, he has accelerated his political contributions, giving predominantly to Republicans. It's a subject he rarely discusses publicly.

"I think (the ultra-wealthy) actually have an insufficient influence," Griffin said in an interview at Citadel's downtown office. "Those who have enjoyed the benefits of our system more than ever now owe a duty to protect the system that has created the greatest nation on this planet."

In the 2012 election cycle, Griffin has given $150,000 to Restore Our Future, the super PAC supporting Mitt Romney, and more than $560,000 to the Republican Governors Association. In recent years, Griffin and his wife Anne have given $800,000 to American Crossroads, founded by Republican strategists Ed Gillespie and Karl Rove.

The Griffins also have given approximately $1.5 million over time to David and Charles Koch's conservative causes, which operate under the umbrella Americans for Prosperity. Structured as a nonprofit, its donors are not disclosed, making it a lightning rod for advocates of campaign finance reform.

Despite his support of the Kochs, who are lifelong libertarians, Griffin said he understood the need to regulate some companies, such as polluters.

"When a company creates a product that directly or indirectly adversely impacts the health of people, that product must be regulated," he said. "The process by which it's created must be regulated. No company has the right to injure people. No company."

That fits with his opposition to gambling. Griffin said he has written Gov. Pat Quinn and spoken to both Mayor Rahm Emanuel and former Mayor Richard Daley about his opposition to a Chicago casino.

"There is no great city in America that has a casino (downtown)," Griffin said. "And there's a reason for it. Casinos do not represent the values of a great city."

mmharris@tribune.com

Twitter: @chiconfidential

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Shares of Apple are exploding higher following Q2 earnings yesterday that blew past analysts' expectations.

Apple's stock was last up more than 9.7% in pre-market trading Wednesday.

Here are the ten hedge funds with the largest stake in the iPhone and iPad maker, according to the most recent (12/31/2011) 13F regulatory filing data compiled by Bloomberg. 

• Citadel ~2.79 million shares
• DE Shaw ~2.41 million shares
• Discovery Capital ~2.23 million shares
• Lone Pine Capital ~2.15 million shares
• Tiger Global ~1.62 million shares
• Greenlight Capital ~1.46 million shares
• Viking Global ~1.29 million shares
• Adage Capital Partners ~1.28 million shares
• Renaissance Technologies ~1.28 million shares
• Coatue Management ~1.27 million shares

Apple's stock is up more than 38% YTD. 

SEE ALSO: MARIO GABELLI: Apple Could Go The Way Of Bowling Alleys, AOL And Polaroid >

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UPDATE, CORRECTION:

Below we mischaracterized Kayla Tausche's reporting on Citadel's loss on Facebook.

It was not the fund, but Citadel's retail facing arm -- placing trades for retail clients -- where the losses were felt.

This makes more sense, and makes it even more analagous to the losses experienced by broker Knight Citadel that was reported yesterday.

--------------

ORIGINAL POST: Another big loser on Facebook's first day of trading: Citadel.

CNBC's Kayla Tausche just reported that the Chicago-based fund lost $30-$35 million, which is about the same amount as Knight Capital reported that it lost in an SEC filing filed yesterday.

We actually saw via Bloomberg, that Citadel was trading Facebook like crazy on its first day.

Now we know how rough that was for them.

To read about the similar loss at Knight Capital, see here >

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The fallout from the Facebook IPO fiasco continues...

CNBC's Kate Kelly reports that Citigroup's market-making arm lost $20 million on the social network's IPO trades.

That brings the total reported loss estimates from Facebook IPO trades by different firms to $91 million, according to Kelly. 

Chicago-based Citadel's retail facing arm -- placing trades for retail clients -- lost $30 to 35 million, according to CNBC's Kayla Tausche.

Knight Capital revealed in an SEC filing Wednesday that it too lost $30 to 35 million on Facebook IPO trades.  Knight's CEO Thomas Joyce blasted  the NASDAQ earlier this week on CNBC over how the exchange handled the IPO

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Ken Griffin's hedge fund Citadel is pointing fingers at a rival firm Jump Trading, accusing the prop trading fund of stealing trading algorithms via former Citadel employees, according to Reuters.

Citadel hasn't filed an official lawsuit, but is petitioning the courts for Jump to release documents on trading strategy and records—a move that is legal in Illinois, where the two funds are based, Reuters reported.

From Reuters:

According to Citadel's petition, about 10 employees from that same area, Citadel's tactical trading group, have moved to Jump Trading since 2005.

Over that time, some of the strategies used by Citadel's tactical trading group have become less profitable. According to the fund manager's petition, the strategies are behaving in a way consistent with their having been copied by rivals.

Jump, on the other hand, has denied Citadel's claims and says the $13 billion hedge fund is just using the possible lawsuit as a tactic to get a glimpse of Jump's secret trading formulas.

Read the full Reuters report here >

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