Legal News

For Goldman, Alleged Software Theft Gets Criminal Treatment

By Ashby Jones

Let’s talk about Goldman Sachs: a couple stories to get you caught up on today. The first — from the NYT — concerns whether and to what degree a former Goldman employee, Sergey Aleynikov, made off with proprietary Goldman software after he left the bank. Click here for an earlier LB post on the case.

Last month, FBI agents arrested Aleynikov and accused him of stealing the software that enables ultra-fast buying and selling. Banks and others use such programs to profit from tiny price discrepancies among markets.

This spring, Aleynikov quit Goldman and joined Teza Technologies, a new trading firm. In the days before he left, he transferred code to a server in Germany. Shortly thereafter, the company told the government about the suspected theft. Two days later, agents arrested Aleynikov at Newark.

In response, Aleynikov said he had inadvertently downloaded a portion of Goldman's proprietary code and that he had not used the Goldman code at his new job or distributed it to anyone else.

At Aleynikov's bail hearing, the assistant U.S. attorney prosecuting the case said that simply by sending the code to the German server, he had badly damaged Goldman. "The bank itself stands to lose its entire investment in creating this software to begin with, which is millions upon millions of dollars," he said.

But one interesting question asked by the Times: Why did this so quickly become a criminal — rather than a civil — case? “It is astonishing that the F.B.I. arrested this defendant at all," said Harvey A. Silverglate, a criminal defense lawyer in Boston not involved in the case. Other firms have also sued former employees recently over concern about software theft, though two similar cases are the subject of civil suits rather than criminal prosecution.

In other Goldman news, check out Susanne Craig’s page-one story in the WSJ on a controversial Goldman practice: sending trading tips to large clients before other clients.

Full post as published by Law Blog - WSJ.com on August 24, 2009 (boomark / email).