Lime's Gorton Trades Fast, Seeks Car-Free Utopia

Discussion in 'Wall St. News' started by S2007S, Mar 23, 2007.

  1. S2007S


    Lime's Gorton Trades Fast, Seeks Car-Free Utopia (Update1)

    By Lisa Kassenaar

    March 23 (Bloomberg) -- Step off the elevator into Lime Group's offices atop an 11-story brick building in New York's Chinatown into a crowd of more than 60 stone Buddhas and Asian lions, all handpicked by the company's founder, Mark Gorton.

    To the right, down a staircase, is a metal door that leads to Lime Brokerage LLC, which Gorton says trades stocks faster than any other company on Wall Street -- as many as 6,000 orders a second. At the end of a long hall is LimeWire LLC, maker of the world's most-popular Internet file-sharing software, with 50 million monthly users. The U.S. recording industry says the product is designed for infringing music copyrights -- an accusation Gorton denies -- and is suing for damages of at least $450 million.

    Gorton himself sits at a corner desk with a group of math geeks writing algorithms for Tower Research Capital LLC, Lime Group's in-house quantitative hedge fund, a firm with $117 million in assets. His next project, due this spring, is LimeMedical LLC, which will sell software aimed at helping U.S. doctors reduce paperwork. He's also developing LimeSpot, Internet-based software to help people build and share Web sites. And he runs a nonprofit Web-based venture in urban planning, part of his pet project of reducing traffic in New York.

    ``He's a classic entrepreneur,'' says Fred von Lohmann, an intellectual property attorney at the Electronic Frontier Foundation, a nonprofit group based in San Francisco. ``He has a lot of businesses going at the same time, and if they don't work out, he'll start three more.''


    Gorton agrees. ``My to-do list doesn't ever seem to end,'' he says. ``The biggest problem is that I may not be able to keep the focus; I can get distracted,'' says Gorton, 40, an electrical engineer and former bond trader who has degrees from Harvard, Stanford and Yale universities. ``I didn't envision a lot of this stuff a few years before I was doing it.''

    Lime's companies are slices of Gorton's view of the digital future -- one in which the right software will smooth almost any human interaction, from trading stocks to swapping songs, from recording a patient's medical diagnosis to placing speed bumps on city streets. His 140 employees are mostly computer scientists in their 20s and 30s who share his ideals, particularly that software should be open source, or editable by all of its users.

    Lime employees, on call for impromptu strategy meetings that may last into the wee hours, also make latkes or chili at bimonthly group lunches, ski and surf together and share Gorton's only car, a 2000 black Toyota 4Runner nicknamed the ``LimeMobile.''

    Idea Man

    ``It's the ideas that push things forward for him,'' says Rob Hranac, 32, who worked for Lime from 2001 to '03 as a software developer in the charity wing and now heads business development at Berkeley Transportation Systems Inc. in Berkeley, California. ``The money is a vehicle to get things out there.''

    Lime Brokerage, which has a growing roster of hedge fund clients, has attracted the notice of Scott Appleby, an analyst who follows publicly traded financial exchanges at Deutsche Bank Securities Inc. in New York, even though the company is private. ``Lime is a leader, and this is the future of part of the broker-dealer world,'' he says. ``Their pipes are built in such a way that you can get a lot of orders done in a short time.''

    Sitting in a Chinatown bakery on a frosty winter morning, Gorton, dressed in jeans and a thick, gray sweater, talks about his ideas for an hour after the coffee is drained.

    Car-Free Broadway

    ``I've beaten the markets a half dozen times and will do it a half dozen more,'' says the Lime Group chief executive officer, who has recently read both ``Fortune's Formula: The Untold Story of the Scientific Betting System That Beat the Casinos and Wall Street'' by William Poundstone and ``Team of Rivals,'' Doris Kearns Goodwin's biography of Abraham Lincoln. ``As a personal challenge, it doesn't mean that much anymore,'' he says.

    What means more, he says, is traffic. Gorton, who cycles six miles (10 kilometers) to work down Manhattan's West Side Greenway and dreams of his three children riding their bikes on a car-free Broadway, has just toured Chinatown's narrow streets, pointing out counterfeit parking passes and pedestrians bumping into each other to make way for a truck pulled up on the sidewalk. He says he spent $2 million last year on projects to promote pedestrian traffic and cycling in New York.

    Since September, he's more than doubled the staff to 27 people at The Open Planning Project, the nonprofit known as TOPP, which is developing software for a wiki, or collaborative Web site, to let anyone add to the urban planning in a given locale. ``Part of this, for me, is `What is there to do?''' he says.

    Moroccan Lanterns

    Gorton's surroundings have always mattered to him. He's outfitted Lime's headquarters with a Moroccan-themed common area featuring dozens of lanterns and a painted-ceramic toilet-and- sink set. A roof deck is planted with hundreds of pots of flowers, tomatoes and strawberries. At TOPP's offices in a 200- year-old former sail factory in Greenwich Village, Gorton decreed that the furnishings fit the theme of ``Budapest 1930.''

    ``If you are trying to attract the best people, having a nice space makes good business sense,'' he says. ``But I do it mostly for myself.''

    Mark Howard Gorton didn't start out in the city. He grew up in suburban Oradell, New Jersey, a town of 8,000 people 22 miles from New York, where his father worked as an industrial equipment salesman out of their three-bedroom house. In high school, Gorton played on the soccer team and watched a lot of TV, he says.

    Mondrian Clock

    In 1988, he graduated magna cum laude from Yale with a bachelor's degree in electrical engineering. He was studious and a little offbeat, says Sean Hecht, 39, a classmate who's now executive director of the UCLA Environmental Law Center at the University of California, Los Angeles. Hecht remembers that Gorton's passion for Dutch artist Piet Mondrian drove him to build a large clock in his dorm room influenced by the painter's geometric forms.

    ``It wasn't exactly something other kids were doing,'' Hecht says. ``He's always been a very creative and energetic guy.''

    Developed Modems

    Gorton headed from Yale to Stanford, where he earned a master's degree in electrical engineering. He then joined Martin Marietta Corp., now part of defense contractor Lockheed Martin Corp., working with other engineers developing modems to help the U.S. Air Force outsmart enemy signal jamming. In 1991, he headed to Harvard Business School and, two years later, to Wall Street.

    Gorton traded bonds for almost five years on the proprietary fixed-income desk at Credit Suisse First Boston. At first, he loved the job. ``You felt like you were in the center of the world,'' he says. After a while, though, he wanted to do trades that incorporated stocks and other securities, as well as bonds, something that wasn't possible for him at the bank, he says.

    In February 1998, Gorton and Alistair Brown, a CSFB colleague and fellow engineer, rented a third-floor room on West 12th Street in Manhattan and started Tower Research with money they had earned at CSFB.

    Tower, which trades exclusively for Gorton and a handful of employees and friends, looks for statistically predictable patterns in the financial markets and works to profit from small discrepancies in the numbers. Its engineers program the fund's computers to trade every time the inequity occurs, without any human involvement.

    Weather Derivatives

    ``Right now, there's a gap between systems in the marketplace, and these algorithmic traders are taking advantage of that gap,'' Deutsche Bank's Appleby says. Tower trades global stocks, bonds, currencies and futures, as well as weather and energy derivatives, Gorton says, declining to elaborate. Weather derivatives let traders bet on above-normal or below-normal temperatures for a given city at a given time.

    One of Gorton's early employees was Brad Banks, who was completing a master's degree in engineering at Massachusetts Institute of Technology in Cambridge when he was hired in 1999. Banks recalls standing with a group of colleagues, all under age 30, on April 3, 2000, watching the Nasdaq Stock Market's 100- stock index tumble 7.6 percent -- while Tower's automated trading program raked in profits.

    ``I believed they would do impressive things, and it seemed potentially rewarding,'' Banks says of Gorton's automated trading strategies. ``And it was.''
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    Gorton says that by 2000, the hedge fund firm had developed ideas requiring such rapid execution -- arbitrage opportunities lasting for just fractions of a second -- that he and Brown couldn't find a broker-dealer to handle their business. They built their own system and began selling it to others in the burgeoning world of quantitative trading, creating Lime Brokerage.

    Gorton always had big plans, says Banks, 32, who left Tower in 2003 to start his own New York firm, Athena Capital Research LLC. ``At one point, we were about 15 people, and he was talking about growing to 100 people in the next year,'' he says. ``He's quietly very self-confident, and he definitely trusts his own judgment.''

    Assets in Tower's Spire Overseas Ltd. fund totaled $47.3 million at the end of 2006, and it returned 18.4 percent last year after a 2 percent loss in 2005, according to people familiar with the situation. Since its inception, the fund has gained an average of 14.3 percent a year, the people say. Gorton declines to comment on Tower's results.

    Branson Fan

    Brown, 41, who has an engineering degree from the University of Strathclyde in Glasgow, Scotland, and used to build computer systems to execute trading strategies at CSFB, now is CEO of Lime Brokerage. On his own corner desk, Brown keeps a life-size photocopy of British billionaire Richard Branson's head mounted on a stick, a makeshift mask that he holds over his face once in a while to tweak Gorton. Branson's Virgin Group Ltd., which puts its name on everything from airplanes to wedding gowns, is Gorton's model for the Lime brand.

    ``It was made when Mark was hero-worshiping Branson again,'' Brown says with a laugh.

    Six monitors hang above his head, flashing evidence of the 175 million shares passing through Lime's computers every trading day. Volume hit a record 367 million shares on Feb. 27, when the Dow Jones Industrial Average fell 416 points, the index's seventh-biggest one-day drop.

    Hedge-Fund Clients

    The trading is done by a hundred Lime computers at a facility in Jersey City, New Jersey, where more than 50 customers, mostly hedge funds, also have their equipment. Those computers are set to profit from market inefficiencies that would be lost if their orders had to travel across town on a telecommunications line, says Chief Technology Officer Anthony Amicangioli, who holds an electrical engineering degree from MIT and joined Lime in 2003 from Juniper Networks Inc.

    Lime's computers grab price quotes from exchanges such as the Nasdaq Stock Market and the New York Stock Exchange in 0.1 millisecond -- or 1/10,000th of a second. That's more than twice as fast as other companies offering so-called data delivery, Amica-ngioli, 45, says.


    Once Lime grabs the price quotes, the system executes trades in less than a millisecond. There's no way to prove Lime's claims, says Appleby, because the technology is constantly changing. ``I don't know if they are the fastest guys out there, but it doesn't mean they're not,'' he says.

    Amicangioli says Lime relies on engineers who have backgrounds in networking and data storage, fields where moving a lot of information around quickly is key. He recalls that when he was working at Juniper, his friends from MIT would chat about speeding up systems for arbitrage traders.

    ``The times that they considered very high speed back then seemed like an eternity to me,'' he says. ``For someone in the Internet or telecom equipment space, a millisecond is a very long time.'' At Lime, he's been hiring people with experience writing code for delivering voice and data to homes and offices.
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    Trading Jump

    Brokers working to shave times are increasingly important as so-called program trading explodes, says Brian Hyndman, senior vice president of Nasdaq Transaction Services. That activity, by Lime and rivals such as Automated Trading Desk Inc., of Mount Pleasant, South Carolina, accounts for about 40 percent of the roughly 2.3 billion shares traded every day on Nasdaq, Hyndman says. That's up from about 5 percent in 1999.

    ``Broker-dealers who do this ultra-high-speed stuff are required now,'' he says. In seven months in 2006, Lime traded more NYSE-listed stocks on Nasdaq than anyone else, according to Nasdaq. Virtually all 2,700 stocks listed on the NYSE can also trade on Nasdaq, Hyndman says. Brown expects Lime's NYSE volume to increase as that exchange's automated trading program, which became fully available in March, takes hold with investors.

    Last year, Lime Brokerage had revenue of more than $64 million, up from $13 million in 2002, says Chief Financial Officer Michael Richter. The brokerage, which clears trades through Goldman Sachs Execution & Clearing LP and Penson Financial Services Inc., was profitable after seven months, he says. He declines to give figures. Brown bumped up his staff in 2006 by 11 people, to 31, including two in London and 16 in an office in Waltham, Massachusetts, the company's disaster recovery site. He plans to add options, futures and currency trading, and to boost execution in London and Tokyo.

    BATS Trading

    The brokerage in 2006 also invested in BATS Trading Inc., a Kansas City, Missouri-based electronic stock market, says BATS CEO David Cummings, who declined to give the size of the investment. Others who've bought in include Lehman Brothers Holdings Inc., Merrill Lynch & Co. and Morgan Stanley.

    Gorton made the leap from developing software for trading stocks to programs that let individuals trade computer files when he founded LimeWire in 2000. He thought systems that let one user pluck a file from another's computer had broad commercial applications, he says, including the ability to search for products offered by retail vendors. ``I wanted to get in on it.''

    LimeWire, which is free, has been downloaded more than 400 million times, and about 5 million users are active at any moment, Gorton says. The company makes its money by charging $18.88 for a LimeWire Pro version that offers faster downloading. He declines to give sales figures for the Pro version.

    $150,000 a Song

    LimeWire is also the choice for those who copy music ille- gally, according to a lawsuit filed by the Recording Industry Association of America. In July, the Washington-based industry group, which represents 13 record labels owned by Sony BMG Music Entertainment, Warner Music Group Inc. and others, sued Lime for copyright infringement.

    The suit, filed in U.S. District Court for the Southern District of New York, names LimeWire, Lime Group and both Gorton and Greg Bildson, LimeWire's chief technology officer, as defendants. It seeks $150,000 of damages for each song deemed illegally copied and includes a list of more than 3,000 songs that have been used without permission--for damages of at least $450 million.

    ``Millions of infringing copies of Plaintiff's sound recordings have been made and distributed through LimeWire -- copies that can be and are permanently stored, played and further distributed by LimeWire's users,'' the suit says. ``LimeWire thus substantially replaces the need to buy recordings from legitimate retailers and displaces authorized online sales and distribution services.''
  4. S2007S


    Not Napster

    LimeWire software promotes infringement by offering searches for categories of music, including Top 40 and classic rock, which are almost entirely copyrighted recordings, the suit says.

    Gorton responded in September, arguing in part that the recording industry's comparison of LimeWire to Napster Inc., which lost a similar lawsuit and filed for Chapter 11 bankruptcy protection in 2002, is unfounded. Napster had central servers that kept track of which files were being shared, he says. LimeWire does not.

    Gorton says he and the record companies are negotiating. A $150,000 payment for every song that's been shared using LimeWire software may put the company on the hook for as much as $2.7 quadrillion, he says, based on LimeWire usage estimates. The recording industry lawsuit calls its list of songs a minimum.

    When asked if LimeWire will be around in five years, Gorton says, ``I think so; I'm relatively optimistic.'' Past attempts to stop duplication technology, such as video-cassette recorders, have ultimately failed, he says.

    Von Lohmann, who knows Gorton and is not involved in the case, agrees. ``They are producing a product that can be used for lots of different purposes,'' he says. ``It's not a lot different than a photocopier.''

    Tech Minds

    Relaxing on an oversized green sofa in the office's Moroccan-style living room, Gorton says the long-term success of Lime Group depends on his effort to lure top technological minds. ``I spend more time on hiring than on any other thing,'' he says. ``It's very hard.''

    Gorton says he was among the first U.S. employers to travel to India to mine graduates of the Indian Institutes of Technology, a science and engineering university with seven campuses that accepts only the country's brightest. Since 2001, he has hired 15 IIT graduates and set up a New Delhi outpost for programmers who don't have visas to work in New York.

    India Hires

    Shubham Singal, who graduated from IIT in May 2006, says he turned down an offer from Microsoft Corp. and joined Lime in New Delhi after being interviewed by Gorton. ``He was interested in my perspective,'' Singal says. Lime pays IIT graduates $80,000 plus a $10,000 signing bonus, Gorton says. Singal, 22, has bought himself a mobile phone, a laptop and a car, he says.

    Gorton says he aims to keep recruits from top schools happy with free lunches and team-building events such as the ``co-op'' meals, where a few employees cook for everyone else. One Friday in January, software developer Kevin Faaborg finishes baking brownies and shakes hands with Patrick Aber, a Tower programmer, over a buffet of beef Bourguignon and vegetarian lasagna. Aber mentions he went to Harvard. It turns out both lived in the same dormitory, albeit in different years.

    Staffers also get five weeks of vacation and take trips together to resorts in Colorado and Costa Rica, paying only the airfare. They can take naps anytime in the Moroccan pillow room. At one summer event on the roof deck overlooking Manhattan, Gorton climbed above the crowd and told everyone he loved them, says Adam Fisk, a programmer who left in 2006 to start a software company.

    Biking to Brooklyn

    ``It was overall a pretty remarkable place,'' Fisk says. Still, some colleagues weren't happy with the loose atmosphere. ``There are definitely some people who thought this wasn't the way a company should be run,'' he says. ``They found Mark flaky and didn't buy into the whole thing.''

    Gorton certainly travels his own path. He often straps his children into the bucket of his Dutch cargo bike, a giant wheelbarrow with pedals and a seat, and cycles from his town house on Manhattan's Upper West Side and across the Brooklyn Bridge.

    One Sunday last September, he arrived at the home of Jackie Arasi, his charity arm's co-managing director, and for the next six hours ate barbecued ribs, lingered in a local playground and picked up an unending conversation about technology and traffic.

    ``He's a think-aholic,'' says Arasi, 27, who holds a bachelor's degree in history from Stanford. Her interview with Gorton in 2004 lasted four hours, she says.

    Left the Monastery

    Arasi's job includes looking for Hungarian-style furniture to decorate TOPP's workspace. She also manages 23 people, mostly software experts. TOPP was bombarded with résumés last year after advertising for software developers for what she described as a nonprofit company that isn't concerned with increasing its revenue. That lured Chris Abraham, a University of Waterloo engineering graduate who left a Zen monastery to take the job.

    ``He said we are the only organization that fit with his value structure,'' Arasi says.

    Gorton is also building an alliance for bicyclists and pedestrians, the New York City Streets Renaissance, which ties TOPP to two Manhattan-based advocacy groups, the Project for Public Spaces and Transportation Alternatives.

    He wrote the program's 15-page booklet, called `The Problem with Traffic in New York,' showing familiar Manhattan corners enhanced with wider sidewalks, bike lanes and street cafes. He created, with six reporters and a three-person film crew chronicling city traffic. He also produced a one-hour film on street congestion last year called `Contested Streets,' snippets of which have run on U.S. public television, he says.

    Certain of Success

    ``Mark seems to have a certainty about the long-term success of the New York he's promoting,'' says Enrique Peñalosa, an economist and visiting scholar at New York University. As mayor of Bogotá from 1998 to 2000, Peñalosa built hundreds of miles of sidewalks and bike paths and added a bus transit system funded by higher gas taxes.

    In October, Gorton paid for Peñalosa to attend a Columbia University transportation conference. The morning of his speech, they rode bikes to the school's Upper Manhattan campus together with David Byrne, former lead singer of the band Talking Heads, who's also a cycling advocate. That night, Gorton threw a cocktail party for Peñalosa at his home, with guests including Iris Weinshall, then-commissioner of New York City's Department of Transportation, and her husband, New York's senior U.S. senator, Chuck Schumer.

    Gorton says he first became interested in cutting traffic while riding an old mountain bike around the city in 2000. ``I almost got killed and thought, 'This is stupid,''' he says. ``Once you see how things can be so much better, it's hard to walk down the street and not want to change it.'' That's true for Gorton whether he's riding his bike, trading stocks or facing off with the music industry -- he's trying to spin the world his way.
  5. dchang0


    Just as long as he doesn't try to force the rest of us to do things his way... Seems like a lot of those ultra-successful types get it in their heads that their way is better than everyone else's and that our rights and opinions don't matter.

    Like Soros with his anti-gun mission--I like my guns, just fine, thanks. After getting attacked by a group of skinheads (when I didn't have a gun handy) and having someone try to enter my home with me in it, guns are a must-have for me. But Soros keeps bankrolling attempts to take our guns away, and unless he plans on hiring bodyguards for everybody in America, he doesn't have the right. It doesn't matter how good a trader he is, it's not his ass on the line when I'm in a fight.
  6. Well said. I don't even think Soros was born in America, or knows the culture.
  7. nkhoi

    nkhoi Moderator

    > LimeWire is also the choice for those who copy music ille- gally
    I though I recorgnize the name.
  8. anyone reading this

    if you have personally used their software

    is this for the moment the "fastest draw"
    on the street ?
  9. kjsnow25


    I can ball park speed figures for you if you need them, feel free to PM me if you would like....