Lawyers for Citadel Investment Group LLC on Friday called on a judge to temporarily shut down a high-frequency trading firm started by two former employees, who earlier this year left to set up their own business.

The Chicago-based hedge-fund firm has alleged that Mikhail "Misha" Malyshev and Jace Kohlmeier violated their non-compete agreements after leaving to head Teza Technologies LLC, a high-frequency trader.

"What we've got here is a veritable pirate ship of illegal activity," said Citadel lawyer Brian Sieve in closing arguments before a Chicago court.

He alleged that Teza's founders plotted to poach Citadel employees and develop competing high-frequency trading strategies, while keeping their activities secret from their former employer.

Sieve called upon Judge Mary Rochford to enforce the ex-Citadel executives' non-competes, and to temporarily shut down Teza's operations.

Malyshev and Kohlmeier were key figures in Citadel's high-frequency trading group, and helped expand it into a unit that earned $1 billion in 2008, even as the company's flagship hedge funds lost 55% amid the global financial turmoil.

High-frequency trading, driven by computer programs, seeks profits through rapid-fire transactions across multiple exchanges and trading venues. It has helped banks and proprietary trading firms make healthy returns as the broader market struggles.

Malyshev and Kohlmeier departed Citadel's high-frequency group, called Tactical Trading, in February and formed Teza a month later.

But the start-up firm didn't catch Citadel's attention until the early July arrest of Sergey Aleynikov, a former computer programmer with Goldman Sachs Group Inc. (GS) who has been charged with stealing code from the Wall Street bank.

Aleynikov had left Goldman to join Teza, which subsequently fired him.

Teza maintains that no Goldman Sachs code was uploaded to its servers, and that employees took steps to delete other uploaded code with questions around its ownership or licensing.

In legal arguments this week before the Chancery Division of Cook County, Ill. Circuit Court, lawyers for Teza have argued that the work being done by Malyshev, Kohlmeier and their employees amounted only to building infrastructure - hiring employees, testing software and connectivity tools, and evaluating high-speed connections to exchanges.

Teza maintains that it has done no work on developing trading strategies, which would put Malyshev and Kohlmeier in violation of their non-competes with Citadel.

In the case, Citadel is seeking an injunction to enforce the full nine months of Malyshev and Kohlmeier's non-compete agreements and the non-solicitation agreement for a full year.

Citadel has also asked the court to prohibit Teza from doing business for nine months, and to destroy all the work that the firm and its employees have done so far - the result of "illegal conduct," according to Sieve.

In separate arbitration proceedings, Citadel is pursuing $300 million worth of damages from each of the defendants, along with $100 million from a former Citadel lawyer now serving as Teza's general counsel.

Arguments are expected to continue Friday afternoon.

-By Jacob Bunge, Dow Jones Newswires; 312-750-4135; jacob.bunge@dowjones.com