Sergey Aleynikov's court saga

Crime and Punishment: Sergey Aleynikov's court saga

• June 2009: Aleynikov quits Goldman Sachs after being hired by Teza Technologies. Prosecutors alleged he stole Goldman's computer code on his last day at work.
• July 2009: Aleynikov is arrested after returning to Newark Liberty International Airport. Teza suspended Aleynikov after his arrest and eventually terminated him.
• February 2010: He is indicted and pleads not guilty to charges that he stole Goldman's computer codes.
• December 2010: Aleynikov is convicted by a jury and later sentenced to eight years in federal prison.
• February 2012: An appeals court overturns his conviction and Aleynikov is freed from prison in Fort Dix, N.J.
• August 2012: Aleynikov is arrested in New Jersey and later charged with a nearly identical crime by the Manhattan district attorney.

Source: WSJ research

Sergey Aleynikov and his lawyer, Kevin Marino, leaving court in Manhattan in August 2012

Mr. Aleynikov's troubles began in 2009, when after working for two years as a computer programmer at the New York investment bank, he accepted a $1 million-a year job programming computers to execute superfast trades for a Chicago start-up.

His world came crashing down on a July day at Newark Liberty International Airport in New Jersey when he was arrested and charged with illegally downloading 32 megabytes of computer code from Goldman's computers and sending it to a computer server in Germany. Federal prosecutors alleged that he downloaded the code to help him build a similar high-speed trading platform at Teza Technologies LLC, a start-up founded by Mikhail "Misha" Malyshev, a former executive at hedge-fund Citadel LLC.

Teza suspended Mr. Aleynikov after he was arrested and eventually terminated him.

He was convicted in December 2010. After a year in prison, an appeals court overturned his conviction, saying that taking the code may have violated his obligations to the company but wasn't a crime under the laws for which he was convicted.

It is rare, but not unprecedented, for prosecutors to charge a defendant who already has been convicted and served prison time, or a federal appeals court has overturned the conviction. The law permits it, though. A legal precedent known as "Dual Sovereignty" allows state and federal entities to prosecute what are essentially the same crimes. New York state also has built-in exceptions that allow prosecutors to charge people with the same crime, even if a case has already been adjudicated in federal court.

NY court explains why it freed Goldman Sachs programmer Sergey Aleynikov

NEW YORK — A New York federal appeals court says it freed a former Goldman Sachs computer programmer Sergey Aleynikov from prison because a law used to convict and imprison him was misinterpreted.

At least one member of the 2nd U.S. Circuit Court of Appeals panel said Wednesday that Congress should revisit the law.

That judge says the law is ambiguous and required that Sergey Aleynikov be freed. But he added that he hopes Congress rewrites the law and clarifies what it meant to say was criminal.

The resident of North Caldwell, N.J., was freed in February, shortly after lawyers argued the case.

He was serving a sentence of more than eight years after a jury convicted him in December 2010 of stealing trade secrets.

Sergey Aleynikov Gets 8 Years for Code Theft

A former Goldman Sachs computer programmer convicted of stealing source code from the firm was sentenced on Friday to more than eight years in prison, capping a case that had shone a rare spotlight on the world of lightning-fast computer-driven trading.

A federal jury in Manhattan in December found the programmer, Sergey Aleynikov, guilty of stealing proprietary code that places trades using computer algorithms that spot tiny discrepancies in stock prices. Such trading earned Goldman about $300 million in 2009.

Before leaving Goldman for a new job at a start-up, Teza Technologies, federal prosecutors had claimed, Mr. Aleynikov secreted the code onto a server in Germany to get around the investment bank’s security systems.

The prison term, while at the low end of federal sentencing guidelines, was four times what probation officials had recommended. Prosecutors had asked for as much as 10 years.

more at NYT

Prosecutors Seek 10-Year Prison Term for ex Goldman Sachs Programmer

(Bloomberg) Former Goldman Sachs Group Inc. (GS) computer programmer Sergey Aleynikov should get as much as 121 months in prison for stealing the firm’s computer source code, U.S. prosecutors said in a court filing.

Aleynikov, convicted in December of violating the Economic Espionage Act and the Interstate Transportation of Stolen Property Act, has asked to be given probation when he is sentenced by U.S. District Court judge Denise Cote on March 18. Prosecutors cited Aleynikov’s alleged history of violating intellectual property laws, asking Cote to sentence him to 97 to 121 months.

“Aleynikov was simply a thief motivated by greed, someone who sought to benefit from the valuable intellectual property of his employer to make money for himself and his new company,” prosecutors said in a sentencing memorandum filed in Manhattan federal court March 11.

On Feb. 24, Cote ordered Aleynikov, who had been free on bond, jailed before sentencing because she deemed him a flight risk. Aleynikov, who is a naturalized U.S. citizen, holds dual U.S.-Russian citizenship, said his attorney Kevin Marino.

The case is U.S. v. Aleynikov, 1:10-cr-00096, U.S. District Court, Southern District of New York (Manhattan).

Ex-Goldman Programmer Is Guilty in Code Theft

(wsj.com)A former Goldman Sachs Group Inc. computer programmer was convicted Friday of stealing the confidential source code of the investment bank's high-speed trading system.

High-speed trading and other financial firms aggressively protect their code, considering it a trade secret and a competitive advantage. Goldman required employees to sign a confidentiality agreement as part of their employment and that any software developed by them in their jobs were the property of the investment bank.

Sergey Aleynikov's conviction is the second guilty verdict in as many months involving the theft of high-speed trading code. Last month, Samarth Agrawal, a former Société Générale trader, was convicted of stealing the bank's high-frequency trading code after he freely admitted to sharing aspects of the bank's computer code with a rival.

The trial of Mr. Aleynikov focused on the complex computer programs used by investment banks, hedge funds and other securities firms to squeeze more profits from their trading operations. Such high-frequency trading involves rapid-fire buy and sell orders aimed at capitalizing on minuscule differences in price.

In its second day of deliberations, the jury found Mr. Aleynikov guilty of theft of trade secrets and transportation of stolen property. He faces as long as 10 years in prison on the trade secrets charge.

U.S. District Judge Denise Cote changed his bail conditions after the verdict, requiring Mr. Aleynikov to be subject to home confinement pending sentencing.

The judge also suggested that his name be added to a watch list to prevent him from leaving the country. Mr. Aleynikov is from Russia originally.

Kevin Marino, Mr. Aleynikov's lawyer, declined to comment after the verdict.

Goldman Sachs declined to comment on the verdict.

Ex-Goldman Programmer Aleynikov Stole Code, Jury Told

(Bloomberg) -- Sergey Aleynikov, a former Goldman Sachs Group Inc. programmer, “stole valuable secret computer code” from the brokerage, a prosecutor told jurors at the opening of the trial in New York on charges of theft of trading software.

Assistant U.S. Attorney Joseph Facciponti made the government’s opening statement today in federal court in New York. Aleynikov’s lawyer followed, saying his client broke a confidentiality rule of the company and committed no crime.

Aleynikov is charged with violating the Economic Espionage Act and the Interstate Transportation of Stolen Property Act. U.S. District Judge Denise Cote, who is presiding over the trial, dismissed a third criminal count of unauthorized computer access in September.

If convicted, Aleynikov faces as much as 15 years in prison.

Facciponti told jurors the programmer started at Goldman Sachs in 2007 and worked there until 2009, when he agreed to take a job at Teza Technologies LLC. Chicago-based Teza promised a $1.2 million salary, a bonus and profit-sharing, compared with $400,000 he was making at Goldman Sachs, the prosecutor said.

At about 5:20 p.m. on his last day of work, June 5, 2009, Aleynikov sent parts of Goldman’s high-speed trading code to an outside computer server, Facciponti said.

Breaching a Barrier

He “thought that he’d found a foolproof way of getting around the security barriers” designed to prevent employee theft of trade secrets, Facciponti told the jury. Aleynikov sent stolen code to a code-storage website in Europe that wasn’t blocked by Goldman Sachs, he said. Aleynikov then executed a program to cover his tracks, Facciponti said.

Aleynikov was arrested on July 3, 2009. Federal agents searched Aleynikov’s laptop, a flash drive and his home computers, with his consent, Facciponti said. All contained code stolen from Goldman Sachs, he said.

A defense lawyer, Kevin Marino, argued in his opening statement that Aleynikov intended to strip out pieces of open- source software -- software available for use by the public -- contained within the Goldman Sachs code files. He tried to cover his tracks because he knew he was violating the company’s confidentiality rules and feared he would be sued by the firm.

“I will dispute to my death that violating a Goldman Sachs confidentiality provision is a federal crime,” Marino said.

Theft Allegation

Shortly after Aleynikov’s arrest, Facciponti told a judge that the programmer stole Goldman Sachs’s entire high-speed trading platform. Prosecutors have since said they believe he stole only parts of it.

The judge yesterday told lawyers that she won’t seal the courtroom as the government asked, at least during the testimony of the first four witnesses, who may testify today.

“I’m hoping that all of the testimony will be public,” Cote said.

Prosecutors asked Cote to keep parts of the evidence secret to avoid disclosing trade secrets of Goldman Sachs.

The trial is to take at least two weeks.

The case is U.S. v. Aleynikov, 1:10-cr-00096, U.S. District Court, Southern District of New York (Manhattan).

Ex-Goldman Programmer Aleynikov Pleads Not Guilty

(Bloomberg) -- Former Goldman Sachs Group Inc. computer programmer Sergey Aleynikov pleaded not guilty to federal charges that he stole trading software from the bank.
Aleynikov, 40, entered his plea today before U.S. District Judge Denise L. Cote in New York. The judge set a trial date of Nov. 29.

Aleynikov was arrested in July and indicted Feb. 11. A prosecutor said during a July court appearance that the alleged theft is the “most substantial” New York-based Goldman can recall. The programmer stole code on his last day at the bank in June, according to the indictment.

“The defendant has taken source code at various other times during the course of his employment,” Assistant U.S. Attorney Joseph P. Facciponti told Cote today.
Aleynikov’s lawyer, Sabrina P. Shroff, declined to comment after the hearing.

According to the indictment, Aleynikov’s last day at Goldman was June 5, before he left to join Teza Technologies LLC, a Chicago-based firm co-founded by Misha Malyshev, a former Citadel Investment Group LLC trader.

Beginning at 5:20 p.m., he transferred Goldman code for its trading platform to an outside server in Germany, according to the indictment.

Deleting History

“After transferring the files, Aleynikov deleted the program he used to encrypt the files and deleted the computer’s ‘bash history,’ which records the most recent commands executed on his computer,” U.S. Attorney Preet Bharara said in a statement.

Teza suspended Aleynikov after his arrest and has since fired him. On July 2, he attended meetings at Teza’s office and brought his laptop computer and another storage device, each of which held Goldman’s source code, the government said.

Facciponti told Cote today that a preliminary search of Teza’s computers didn’t turn up any Goldman source code.

“There’s a good reason why the U.S. attorney found no Goldman code on the Teza computers, and that’s because Teza got no Goldman code from Aleynikov or anyone else,” Chris C. Gair, a lawyer for Teza at Jenner & Block LLP in Chicago, said in a phone interview.

The software code at issue in the case, worth millions of dollars, lets Goldman do “sophisticated, high-speed and high- volume trades on various stock and commodities markets,” prosecutors said in court papers. Aleynikov planned to earn three times his salary by joining the new company and engaging in high-volume automated trading, prosecutors said at the time of his arrest.

$750,000 Bail

Aleynikov, who is free on $750,000 bail, lives in New Jersey and holds dual U.S. and Russian citizenship. He and Shroff, his lawyer, previously said the files prosecutors claim he stole weren’t shared with anyone and he took them so he could work from home.

The indictment followed Shroff’s appeals to prosecutors to drop the case.

Aleynikov starting working at Goldman in 2007, the government said. He was part of a team of workers responsible for improving the computer platform.

Before joining Goldman, Aleynikov worked for about eight years at IDT Corp., the U.S. vendor of prepaid calling cards, where he led the team responsible for developing routing systems, according to the profile on the social-networking site LinkedIn.

He is charged in the indictment with one count of theft of trade secrets, one count of transportation of stolen property in foreign commerce, and one count of unauthorized computer access. He faces as long as 25 years in prison if convicted.

The case is U.S. v. Aleynikov, 1:10-cr-00096, U.S. District Court, Southern District of New York (Manhattan).

Citadel rivals called 'pirate ship of illegal activity'

(Reuters) — Lawyers for Citadel Investment Group urged a judge on Friday to prohibit Teza Technologies and its two founders from doing business for at least nine months, calling the high-frequency trading start-up a "veritable pirate ship of illegal activity."

During final arguments in the preliminary injunction portion of Citadel's civil lawsuit against Teza, lawyers for the giant hedge fund firm said the defendants, former Citadel executives Mikhail Malyshev and Jace Kohlmeier, had violated their promise not to compete against Citadel or solicit its employees when they "surreptitiously" set up the new company less than six weeks after leaving Citadel.

Friday's arguments drew Kenneth Griffin, Citadel's founder and head, into the packed courtroom, where company lawyers claimed the proceedings were being monitored by the "entire financial community" to see whether non-compete agreements the two men allegedly violated still had any meaning.

The case has also garnered attention because of the small window it has opened on the secretive, lucrative and fast-growing world of high-frequency trading.

Citadel's lawyers claim that Teza is a competitive enterprise that has been recruiting talent, building databases of historical and real-time market, constructing a super-fast trading engine and developing trading signals and strategies in an effort to be able to engage in high-frequency, low-latency trading.

Such trading, theoretically, would allow it to predict the price of a financial instrument one second in the future and profit from that.

Teza made headlines this summer when one of its hires, a former Goldman Sachs Group Inc. computer programmer named Sergey Aleynikov, was arrested and charged with stealing secrets from the investment bank. Aleynikov denied the charges, but Teza fired him.

Citadel subsequently filed a lawsuit against Teza, claiming that Malyshev and Kohlmeier had violated their non-compete clauses by starting the new company.

In earlier testimony in the case, the court heard that two other Teza employees had loaded code onto the start-up's computers that may have belonged to their previous employers.