How Ken Griffin Went From Competing With Goldman Sachs To Imploding In Just Three Years

ken griffin

Photo: Courtesy of Bloomberg

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...

Then the firm's President quit after just 1 year.

Rohit D'Souza, whom Griffin hired to be the president of Citadel Securities, quit after just a year.

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And within a year, two more top execs had quit the firm.

Peter Santoro quit Citadel Securities just two months after Rohit D'Souza left.

Months later in January 2010, another big name at the firm, Todd Kaplan, left.

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Four months later, Patrick Edsparr was let go from Citadel Securities.

Despite rumours bigger problems and criticisms of CS's high turnover rate, Griffin pledged to persevere.

In May 2010, Griffin pledged to pursue the investment bank despite the high turnover of his top executives.

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But rumours that the investment bank was shutting down continued, and Griffin began laying off employees.

In October 2010, it became clear that Citadel was having serious problems.

We heard a convincing rumour that big time layoffs were coming in Griffin's Citadel Securities, partly because of big losses and partly because the investment bank model was just not working.

They said that a large number of employees would be laid off that month, followed by more in the following months. Ultimately, they said, Citadel Securities would shut down.

Sure enough, around a dozen employees (including another big executive, James Doyle, the former co-head of equity derivative trading) were laid off days later.

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Four months later, in January 2011, 3 more top execs were let go.

In January 2011, Chris Boas, head of credit markets; Brad Kurtzman, who ran equity derivatives sales and trading; and Carl Mayer, the head of leveraged finance in the investment banking unit, left Citadel.

What went wrong? Some suspect that the high turnover was contagious. Or maybe Griffin had too much on his plate with the hedge fund, Ominium, and Citadel Securities.

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Then Citadel hired at least six more people in 2011, and things were looking up.

One of Griffin's new hires, Geoff Coley, was reportedly bringing a team of 30 with him from Chapdelaine to Citadel Securities when he was hired in February 2011.

Then Citadel sold Ominium, their hedge fund servicing unit, for around $100 million in May.

But months later, word was that Griffin had hired five new traders: John Covello, Kevin Malone and Scott Sodokoff from Piper Jaffray, Todd Bondy from Goldman Sachs, and Michael Smith from Wachovia.

Things were looking up.

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But alas, the rumours were true. In July, more layoffs hit. By August, word is Citadel is in talks to sell Citadel Securities, and it's firing even more.

In July, Citadel Securities quit plans to be a market maker in Treasuries and fired a bunch of people.

Then on August 11, 2011, Bloomberg reported that Ken Griffin was in talks to sell Citadel Securities.

Not everything in the investment bank is shutting, at least not yet. Bloomberg's sources say the business will now focus on providing electronic trading to institutions and on its market-making business, but that was a successful part of the Citadel repertoire before Griffin founded Citadel Securities.

Among those who will be let go: Jaine Mehring and her research team, as well as others in the investment bank.

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The good news for Griffin: he's still got his hedge fund, his billions, his wife, and his superb poker skills.

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