A wave of companies with ties to the intelligence community is winning over the world of finance.
Spies are infiltrating Wall Street.
A wave of companies with ties to the intelligence community is winning over the world of finance, with banks and hedge funds putting the firms’ terrorist-tracking tools to work rooting out employee misconduct before it leads to fines or worse.
“Both Wall Street and the intelligence world want the same thing: to find unknown unknowns in the data,” said Roger Hockenberry, the former chief technology officer of the Central Intelligence Agency’s clandestine services and now a partner at the consulting firm Cognitio Corp. in Washington.
“Financial firms aren’t looking for terrorists, but good customers and attempts at fraud,” he said.
The CIA gave many of these companies their big break: After the terror attacks of September 2001, a private-equity arm of the CIA known as In-Q-Tel began seeding companies that could help it sift through vast repositories of data to quickly identify threats. Those skills have become more valuable on Wall Street as firms try to keep up with rogue traders in increasingly complex and rapidly moving markets.
Of 101 companies publicly seeded by In-Q-Tel, 33 have taken on Wall Street clients in recent years, according to a review by The Wall Street Journal. A spokeswoman for In-Q-Tel declined to comment.
Other companies in this field include Palantir Technologies Inc., which helps government and Wall Street clients analyze their data; Recorded Future Inc., which monitors the Internet for coalescing cybersecurity threats and other events; and Domino Data Labs Inc., which provides the plumbing for firms to do data analytics.
Palantir raised $450 million last week at a valuation of about $20 billion. Since 2009, it has received more than $215 million in contracts with the Federal Bureau of Investigation, the Defense Department and the Department of Homeland Security, according to USAspending.gov, a federal site that publishes government contracts. The company, which got its start working for intelligence agencies, now says more than 60% of its business comes from commercial clients, particularly on Wall Street.
Another firm, a small technology company in Tennessee called Digital Reasoning Systems Inc., counts Swiss bank UBS Group AG, New York hedge-fund firm Point72 Asset Management LLP and Credit Suisse Group AG as customers of data-combing software the U.S. government has been using to track down enemies of the state.
Tim Estes founded the firm that became Digital Reasoning in 2000 during his last year of college at the University of Virginia, where he studied philosophy.
Conceived as a company specializing in “machine learning,” a branch of computer science dealing with programs that can learn from data and make better predictions, Digital Reasoning struggled during its first couple of years.
But one day in 2002, Mr. Estes landed a meeting at a nearby Army base. He demonstrated an early version of the software product that came to be known as Synthesys, showing how the company’s systems could read vast amounts of text and extract patterns and links not apparent to the human eye.
That led to a pilot project and an initial government contract in 2004. The system became embedded in Army systems and was used in the field in Afghanistan, according to Digital Reasoning.
An In-Q-Tel investment in 2011 precipitated an even bigger mandate for Digital Reasoning from a wider swath of agencies, including the CIA.
Located in a glassy office block on the outskirts of Franklin, Tenn., the firm’s staff of about 100 includes more than 30 employees with top-secret security clearance. Former Wall Street researchers and young technologists shuffle in and out of conference rooms named after locations from the “Lord of the Rings” trilogy.
“We see ourselves as the Darwinian outcome of billions of dollars of intelligence spending post-9/11,” says Mr. Estes, 36 years old.
Digital Reasoning’s government work is classified but Mr. Estes said it involves things like “figuring out the aliases of certain people that were very hard to find in the data.”
Last year, Digital Reasoning raised $24 million from a group of banks led by Goldman Sachs Group Inc. and Credit Suisse. So far, it has publicized contracts to assist the compliance teams of UBS and Point72, the $11 billion firm run by Steven A. Cohen that was formerly known as SAC Capital.
Point72 uses systems from Digital Reasoning in conjunction with those from Palantir to monitor roughly one million emails, instant messages and other electronic communications every week, according to Vincent Tortorella, the firm’s chief compliance and surveillance officer.
You can read the full Wall Street Journal article here.