Legal News

Trade Not-so-Secrets: Alleged Corporate Espionage Hits Goldman

By Ashby Jones

What’s the secret behind Goldman Sachs’s legendary success? We have little idea, but judging from recent news reports, you’d might be led to believe that part of it is wrapped up in computer codes related to a high-speed trading program.

Last week, a Goldman computer programmer who quit the firm last month was arrested and charged with stealing some such codes. The programmer, Sergey Aleynikov, 39 years old, was arrested Friday by FBI agents as he got off a plane in Newark. According to a complaint filed Saturday, Mr. Aleynikov downloaded 32 megabytes of data from Goldman’s computer system with “the intent to convert that trade secret to the economic benefit of someone other than the owner.” Click here for the WSJ story; here for the NYT story.

According to a person familiar with the matter, the specific program that Aleynikov worked on was used primarily by Goldman’s principal traders, who take risks with the New York company’s capital because they buy securities from clients that may end up on the Goldman balance sheet.

The software generated "many millions of dollars of profits per year" for the bank, the documents said.

Aleynikov, who lives in Little Falls, N.J., and is a Russian immigrant and naturalized U.S. citizen, couldn’t be reached for comment. His lawyer, Sabrina Shroff, said she believes he is innocent. Prosecutors said Aleynikov said that any access to protected information was accidental.

According to the FBI, Aleynikov got a job offer earlier this year at an unnamed Chicago firm that planned to triple the $400,000-a-year salary he was paid at Goldman. The unnamed company is “new” and “intended to engage in high-volume automated trading,” the FBI said in the court filing. Aleynikov’s last day at Goldman was around June 5.

Aleynikov was released from custody Monday after posting a $750,000 personal recognizance bond secured by three financially responsible people and $75,000 in cash.

People close to Goldman say there was no financial impact on the firm. The company’s surveillance systems caught the alleged breach, and Goldman notified the FBI. But the arrest shines a spotlight on the inner workings of Goldman’s computer-programming department, which helps traders generate returns that contribute to the firm’s reputation as one of the savviest buyers and sellers on Wall Street.

Full post as published by Law Blog - WSJ.com on July 07, 2009 (boomark / email).