Goldman Sachs Programmer Back in Court on New Charges

Sergey Aleynikov, wearing a baseball cap, leaves Manhattan federal court in February after his conviction for stealing Goldman Sachs’ high-speed trading code was reversed. Photo: AP

Just when he thought his troubles were over, a former programmer for Goldman Sachs who downloaded source code for the investment firm’s high-speed trading system from the company’s computers is back in New York state court on new charges that he unlawfully duplicated and used the company’s proprietary code.

Sergey Aleynikov was re-arrested last week, according to his attorney, and is being arraigned in Manhattan criminal court Thursday afternoon on state charges of “unlawful use of secret scientific material” and “unlawful duplication of computer related material.”

The new charges come after Aleynikov defeated previous federal charges against him for theft of the code. His defense attorney calls the new charges “improper.”

“I think it seems vindictive, and I’m confident that he’s going to prevail,” defense attorney Kevin Marino told Wired.

Aleynikov, 42, was convicted in 2010 under the Economic Espionage Act of 1996 (EEA), in a high-profile case that was held up by federal prosecutors as an example of the Justice Department’s serious intent to prosecute the theft of intellectual property and trade secrets.

But last February, an appellate court reversed that conviction and sprung Aleynikov from prison a year after he had begun to serve an eight-year sentence. The appellate court ruled that Aleynikov had been wrongly charged with theft of property because the code did not qualify as a physical object under a federal theft statute.

“Because Aleynikov did not ‘assume physical control’ over anything when he took the source code, and because he did not thereby ‘deprive [Goldman] of its use,’ Aleynikov did not violate the [National Stolen Property Act],” the 2nd Circuit Court of Appeals wrote in its opinion.

The three-judge appellate panel also ruled that Aleynikov was wrongly charged with espionage, since the code was not a product designed for interstate or foreign commerce, a requirement under the Economic Espionage Act with which he was charged and convicted. The court found that Goldman’s system was neither “produced for” nor “placed in” interstate or foreign commerce, nor did the company have any intention of selling its system or licensing it to anyone.

The new charges allow the government to come after Aleynikov from a different path.

“It’s hard to believe that the authorities would think it appropriate to pursue state charges against a man who has already spent a year in prison for a federal crime he did not commit arising from the same facts that underlie the state charges,” Marino said. “But apparently that’s what they’ve chosen to do, so we will vigorously defend him.”

Aleynikov has acknowledged that he violated the bank’s confidentiality policy in downloading the source code from the company’s computers, but he has long asserted that what he’d done was not a criminal act.

Prosecutors argued to the appeals court that Congress amended the Economic Espionage Act in 1998 to include the transfer and transmission of non-physical forms of stolen property in the law, thereby covering source code. But the judges rejected this claim, stating that the 20-year-old amendment clearly had been meant to cover the transfer and transmission of money, not the theft of source code in the computer age.

The Russian-born Aleynikov worked for Goldman Sachs until June 2009, when authorities said he siphoned source code for the company’s valuable software on his way out the door to take a new job with another company.

Aleynikov, a naturalized U.S. citizen who emigrated from the disintegrating Soviet Union in 1991, earned nearly $400,000 a year as a vice president with Goldman Sachs. He was arrested in July 2009 at the Newark Airport in New Jersey as he returned from a trip to Chicago to meet his new employers.

Authorities said he stole “hundreds of thousands of lines” of source code from Goldman Sachs in the days before he left the company, downloading various software from the Goldman Sachs network and transferring it to a storage website hosted in Germany, before trying to erase his tracks from Goldman Sachs’ network.

The software is used to make sophisticated, high-speed, high-volume stock and commodities trades and had earned the company “many millions of dollars in profits” each year, according to prosecutors.

Prosecutors said Aleynikov made several copies of the code and had it on his laptop when he met his new employers at Teza Technologies in Chicago, although a later search of Teza computers uncovered no copies of Goldman Sachs’ source code.

Goldman Sachs only uncovered the theft after it began monitoring HTTPS transfers and saw a large volume of data leaving its network, according to court documents. The company initiated the monitoring after noticing suspicious activity on the network.

At the time of his arrest, Aleynikov acknowledged taking the code, but told FBI agents he only intended to collect open source software files on which he had worked, and that his collection of proprietary files on his last day of work had been inadvertent.