A former East West Bank executive has won a key battle in a court fight with the Pasadena, California, company, which alleged that he used its trade secrets to build a digital banking product for a startup he founded.
Last week, a federal judge dissolved a preliminary injunction that East West had previously obtained against Sukeert Shanker, formerly the bank’s chief operating officer for digital banking.
The ruling frees Shanker from a court order that he says stifled his ability to raise money for Aeldra Financial, a mobile banking startup that he founded in 2019.
“It’s a bet-the-company case,” said Yar Chaikovsky, an attorney at Paul Hastings who represents Shanker. “Who’s going to fund a company that’s got a lawsuit against it, let alone an injunction saying you can’t do X, Y or Z?”
An East West spokesperson declined to comment, citing the pending litigation.
The case offers a window into the fierce disputes over purported trade secrets that have been unfolding as banks and fintechs race to develop digital products and services.
Banks have landed on both sides of these fights. Last year, a Denver company
Shanker, who joined East West in 2017, helped the $61 billion-asset bank develop Velo, a digital banking service that assists so-called non-resident aliens with opening U.S. bank accounts. He left East West in 2019 amid a dispute over a bonus that he believed he was owed.
In October 2020, East West filed suit against Shanker, alleging in its complaint that he stole a “treasure trove of proprietary information” that would allow him to create a competing product.
Shanker, who was part of the team that built Marcus by Goldman Sachs before he joined East West, maintains that the documents he took did not contain trade secrets.
Velo by East West Bank is a U.S. bank account for people living outside of the United States, according to the bank’s marketing materials. Customers can apply from a mobile app. East West currently accepts government-issued identification cards from China, Hong Kong, Taiwan and India.
Aeldra also offers a mobile U.S. bank account for foreign nationals — the startup is partnering with Blue Ridge Bank in Virginia — and is currently focusing on the Indian market.
Over the summer, U.S. District Judge William Orrick granted East West’s motion for a preliminary injunction against Shanker. But Orrick subsequently reversed course following the emergence of new documents.
First, it came to light that East West had filed patent applications, which contained information about the bank’s process for onboarding non-resident aliens, and which had been publicly available since April 2021.
Also uncovered was an arbitration agreement, which led the judge to conclude that federal court is not the proper venue for adjudicating the dispute.
In an Oct. 20 order, Orrick wrote that if East West had disclosed the arbitration agreement and patent applications, “I would not have issued the preliminary injunction in its current form, if at all.”
Shanker’s lawyers said that they expect East West to take the dispute to arbitration, where it would proceed confidentially.
In an interview, Shanker described the lawsuit as an effort to hinder competition. “My sense was that East West Bank was doing this to hurt” Aeldra, he said.
He said that the litigation has imposed a financial burden on his startup, in addition to impeding its ability to raise money. He added that the dissolution of the preliminary injunction will free up Aeldra to raise funds for a Series A round.
“It’s good to get this behind us. I always knew there wasn’t substance behind it, but you have to go through the process,” he said.
