Ex-Goldman Programmer Indicted: Fleeting Value of Trading Code May Be Key To Case
February 12, 2010
The indictment on Thursday of a former vice president and programmer at Goldman Sachs who was charged with stealing computer code for the bank’s high-frequency trading platform could boil down to a dispute over what the code’s actual value was at the time it was taken.
That’s the assessment of Michael Shapiro, a partner and white collar criminal attorney with Carter Ledyard & Milburn, a law firm in New York.
“What you have here are allegations of theft of something that Goldman Sachs considers to be very valuable; The programmer’s possible defense is that at the time he stole the code, it had no intrinsic value and if he can prove that, he can get off,” said the attorney.
Shapiro’s comments were in response to the latest developments in a case which first came to light in July of last year. Sergey Aleynikov, an employee at Goldman Sachs from May 2007 to June 2009, was arrested in July of 2009 and charged with illegally transferring and downloading hundreds of thousands of lines of source code for Goldman’s high-frequency trading system on his last day at the firm.
The indictment also said that Aleynikov uploaded the source code onto a laptop computer which he then took to a meeting with his new, Chicago-based employer, Teza Technologies llc, a high-frequency trading firm.
Attorney Shapiro’s comments about a possible defense were made on Friday, with his learning of analysis provided by the capital markets consultancy, The Tabb Group, that said that the 32 megabytes of trading algorithms allegedly stolen from Goldman Sachs would have had a very limited shelf life, because in the world of high frequency trading, such strategies are constantly altered, growing stale after a few days if not far sooner. The analysis was issued by Tabb Group after the arrest of the programmer in question.
Shapiro also pointed out that since six to seven months have passed since Aleynikov was first charged by Federal prosecutors, this indicates that his lawyer and the government have not been able to hammer out a deal.
“Probably the government wanted him to plead to a more serious charge and his lawyer wanted some assurances that whatever the charge might be, he not plead guilty and that he would not be going to jail,” Shapiro said. He added that obviously, there was on no meeting of the minds and hence, the formal indictment on Thursday.
According to Dan Viola, a partner at Sadis & Goldberg llc, a law firm that represents many professional trading firms, the next steps in the case involve the prosecutors initiating discovery and further attempts to reach a settlement. If they can’t do that, they will go to trial. “In this instance, it’s obvious that Goldman Sachs will be concerned about what appears on the public record and so, they may try to keep some of this code information out of the public domain,” Viola said.
Shapiro qualified his comments about a possible defense by saying that he did not know if a “short shelf life” argument for proprietary trading code would necessarily be a winning argument. “Employers are always going to try to protect those parts of their business that they consider to be valuable,” Shapiro said, citing as an example how Coca Cola fiercely protects the formula for its popular soda lines, including the not so popular ones that may have short shelf lives.
Attorney Viola said that the most logical course for Goldman Sachs at this stage would be to argue that they had an agreement with their employee, dictating that any technological programming developed while he was employed is the property of the firm. “Either he stole or invented this property, but in either case, Goldman Sachs will say that he used it at the firm and therefore, they are the owner of that information,” Viola said.
Michael DuVally, a spokesman for Goldman Sachs, said the firm had no comment on the case at this time. Aleynikov’s attorney, Sabrina P. Shroff said that there was not anything she wished to say about the case at this juncture. Earlier, it was reported that she had asked prosecutors to consider a deferred prosecution agreement for her client. According to a report by Reuters, if convicted, Aleynikov faces up to 25 years in prison. He is to be arraigned on the charges on February 17.
