IN the UNITED STATES DISTRICT COURT for the NORTHERN DISTRICT of ILLINOIS EASTERN DIVISION LEVERAGED INNOVATIONS LLC, ) ) Plaint

IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION

LEVERAGED INNOVATIONS LLC, ) ) Plaintiff, ) ) v. ) Civil Action No. ______) CITADEL LLC, and ) CITADEL SECURITIES LLC, ) ) JURY TRIAL DEMANDED Defendants. )

COMPLAINT FOR PATENT INFRINGEMENT

Plaintiff Leveraged Innovations LLC (“Leveraged Innovations”) complains of

Defendants Citadel LLC, and Citadel Securities LLC (collectively, “Citadel”) as follows:

Nature of the Case

1. This is a suit for patent infringement that arises under the patent laws of the

United States, Title 35 of the United States Code. This Court has original jurisdiction over the

subject matter of these claims under 28 U.S.C. §§ 1331 and 1338(a).

2. The President and Chief Executive Officer of Leveraged Innovations, Kenneth

Kiron (“Mr. Kiron”), is the first named inventor of U.S. Pat. No. 7,698,192, U.S. Pat. No.

7,917,422 and U.S. Pat. No. 8,204,815 (collectively, the “patents-in-suit”).

3. Mr. Kiron’s patented inventions relate generally to computer systems for

purchasing, selling, and exchanging exchange traded products, including exchange traded funds

(commonly referred to as “ETFs”). ETFs are investment funds that incorporate, for example,

stocks, commodities, and/or bonds. In many instances, ETFs mirror stock market indexes, but

ETFs may also track, for example, non-security indexes, bonds, and/or currencies. ETFs are

similar in many ways to traditional mutual funds, which can offer easy portfolio diversification to investors. Unlike mutual funds, however, ETFs can be bought and sold throughout the day like ordinary stocks.

4. The patents-in-suit specifically relate to computer systems for creating and exchanging shares in “leveraged” ETFs. Leveraged ETFs are ETFs that use financial derivatives and/or debt to achieve increased returns when compared with non-leveraged ETFs. For example, leveraged ETFs may use borrowed capital in addition to investor equity to provide investors with an increased level of investment exposure.

The Parties

5. Leveraged Innovations is a limited liability corporation organized under the

existing laws of Delaware, and having its principal place of business at 505 Standish Road,

Teaneck, New Jersey 07666.

6. Leveraged Innovations owns and has standing to sue for infringement of United

States Patent 7,698,192 (“the ‘192 Patent”), entitled “Open End Mutual Fund Securitization

Process,” which was duly issued on April 13, 2010.

7. Leveraged Innovations owns and has standing to sue for infringement of United

States Patent 7,917,422 (“the ‘422 Patent”), entitled “Open End Mutual Fund Securitization

Process,” which was duly issued on March 29, 2011.

8. Leveraged Innovations owns and has standing to sue for infringement of United

States Patent 8,204,815 (“the ‘815 Patent”), entitled “Open End Mutual Fund Securitization

Process,” which was duly issued on June 19, 2012.

9. Citadel LLC, which was known as Citadel Investment Group, L.L.C. until June

14, 2010, is a Delaware limited liability company having its principal office at 131 South

Dearborn St., Chicago, IL 60603.

10. Citadel Securities LLC, which was known as Citadel Derivatives Group LLC

until July 2, 2009, is a Delaware limited liability company having its principal office at 131 S.

Dearborn St., Chicago, Illinois 60603.

11. Using computer systems, Citadel LLC, and Citadel Securities LLC (collectively,

"Citadel" or "Defendants") buy and sell exchange-traded products, such as ETFs and leveraged

ETFs.

Jurisdiction and Venue

12. Defendants are headquartered in this judicial district, are registered to do business

in this judicial district, have purposefully availed themselves of the privilege of conducting

business with residents of this judicial district, and have established sufficient minimum contacts with the State of Illinois such that Defendants should reasonably and fairly anticipate being haled into court in Illinois.

13. Venue is proper in this district under 28 U.S.C. §§ 1391(b)–(d) and 1400(b).

COUNT I Infringement of U.S. Patent No. 7,698,192

14. Leveraged Innovations repeats and incorporates herein by reference the

allegations of paragraphs 1 through 13 above.

15. Defendants are market makers on exchanges such as CBOE, and ISE. As market

makers, Defendants are obligated to buy and sell particular exchange traded products, including

options and electronically traded funds ETFs on a regular and continuous basis at a publicly

quoted price.

16. The ETFs for which Defendants are market makers include leveraged ETFs

issued by Direxion, including without limitation Direxion “DLY REAL EST BULL 3X” ETFs

and Direxion “DLY REAL EST BEAR 3X” ETFs.

17. Defendants make, own, maintain, and operate their own alternative trading systems (ATS) including, without limitation, an ATS called APOGEE that directly executes trades of exchange traded products, including leveraged ETFs such as Direxion “DLY REAL

EST BULL 3X” ETFs and Direxion “DLY REAL EST BEAR 3X” ETFs.

18. Defendants' computer systems are configured to facilitate the buying and selling of exchange traded products on third party exchanges, as well as Defendants' own alternative trading systems, such as APOGEE.

19. The exchange traded products traded by Defendants' computer systems include leveraged ETFs, option contracts such as calls and puts, and futures contracts. To facilitate the buying and selling of exchange traded products on exchanges, including APOGEE, Defendants enter into a computer an order to purchase or sell exchange-traded shares.

20. Using computer systems for exchanging shares of an exchange traded product,

Defendants display data representing information about the exchange traded product, such as the bid, offer, and price history. The price of an exchange traded product, such as a leveraged ETF, can be determined in real time based on the underlying price of securities comprising the leveraged ETF.

21. Specifically, Defendants' computer systems include order routing computer servers as well as “algorithm” servers for processing orders. Defendants' “algorithm” servers are co-located near exchange sources to achieve low latency and enable algorithms to anticipate price changes and execute with greater accuracy.

22. By making and using computer systems (including all hardware and software configurations necessary to support those computer systems) to exchange shares of leveraged

ETFs, including without limitation those shares of leveraged ETFs traded by Defendants on third

party exchanges as well as those exchanged on Defendants' APOGEE, Defendants have

infringed, and continue to infringe, at least claims 6, 7, 22, 29, and 30 of the ‘192 Patent within

the meaning of 35 U.S.C. § 271(a).

23. Defendants' acts of infringement of the ‘192 Patent have injured Leveraged

Innovations, and Leveraged Innovations is entitled to recover damages adequate to compensate it

for such infringement by Defendants, and in no event less than a reasonable royalty.

24. To the extent required by law, Leveraged Innovations has complied with the

provisions of 35 U.S.C. § 287 with respect to the ‘192 Patent.

COUNT II Infringement of U.S. Patent No. 7,917,422

25. Leveraged Innovations repeats and incorporates herein by reference the

allegations of paragraphs 1 through 24 above.

26. By making and using computer systems (including all hardware and software configurations necessary to support those computer systems) to exchange shares of leveraged

ETFs including, without limitation, those shares of leveraged ETFs traded by Defendants on third party exchanges as well as those exchanged on Defendants' APOGEE, Defendants have

infringed, and continue to infringe at least claims 1, 8, 15, 16, 18, and 19 of the ‘442 Patent

within the meaning of 35 U.S.C. § 271(a).

27. Defendants' acts of infringement of the ‘442 Patent have injured Leveraged

Innovations, and Leveraged Innovations is entitled to recover damages adequate to compensate it

for such infringement by Defendants, and in no event less than a reasonable royalty.

28. To the extent required by law, Leveraged Innovations has complied with the

provisions of 35 U.S.C. § 287 with respect to the ‘442 Patent.

COUNT III Infringement of U.S. Patent No. 8,204,815

29. Leveraged Innovations repeats and incorporates herein by reference the

allegations of paragraphs 1 through 28 above.

30. By making and using computer systems (including all hardware and software configurations necessary to support those computer systems) to exchange shares of leveraged

ETFs, including without limitation those shares of leveraged ETFs traded by Defendants on third party exchanges as well as those exchanged on Defendants' APOGEE, Defendants have infringed, and continue to directly infringe, at least claims 1 and 2 of the ‘815 Patent within the meaning of 35 U.S.C. § 271(a).

31. Defendants' acts of infringement of the ‘815 Patent have injured Leveraged

Innovations, and Leveraged Innovations is entitled to recover damages adequate to compensate it for such infringement by Defendants, and in no event less than a reasonable royalty.

32. To the extent required by law, Leveraged Innovations has complied with the provisions of 35 U.S.C. § 287 with respect to the ‘815 Patent.

PRAYER FOR RELIEF

WHEREFORE, Plaintiff Leveraged Innovations respectfully asks this Court to enter

judgment against Defendants Citadel LLC, Citadel Securities LLC, and against each of their

respective subsidiaries, successors, parents, affiliates, officers, director, agents, servants,

employees, and all persons in active concert or participation with them, granting the following

relief:

a. The entry of judgment in favor of Leveraged Innovations and against Defendants;

b. An award of damages adequate to compensate Leveraged Innovations for the

infringement that has occurred, but in no event less than a reasonable royalty as permitted

by 35 U.S.C. § 284, together with prejudgment interest from the date Defendants'

infringement began;

c. A finding that this case is exceptional and an award to Leveraged Innovations of its

reasonable attorneys’ fees and costs as provided by 35 U.S.C. § 285;

d. An injunction enjoining further infringement by Defendants; and

e. Such other relief that Leveraged Innovations is entitled to under law, and any other and

further relief that this Court or a jury may deem just and proper.

JURY DEMAND

Leveraged Innovations demands a trial by jury on all issues presented in this Complaint.

Respectfully submitted,

/s/David J. Sheikh Raymond P. Niro ([email protected]) David J. Sheikh ([email protected]) Oliver D. Yang ([email protected]) NIRO HALLER & NIRO 181 W. Madison St., Suite 4600 Chicago, Illinois 60602 (312) 236-0733

Attorneys for Leveraged Innovations