Skip to main content

Prosecutors Not Done Ruining Sergey Aleynikov's Life

  • Author:
  • Updated:

My main thought about Sergey Aleynikov has always been: poor Sergey Aleynikov! When the former Goldman programmer got eight years in federal prison for stealing high-frequency trading code from his and my ex-employer, it was hard not to feel that that was a little harsher than necessary. And I may not have been alone: that sense of unfairness may have informed an appeals court's decision to set him free a year later, because, as a matter of dispassionate legal analysis, that decision was a little weird. It read the federal stealing-computer-secrets law to require stealing physical stuff, so that stealing code on a flash drive taken from the supply closet is an eight-year felony, while stealing code on a flash drive that you bought from Best Buy is no problem. And it read the federal corporate-espionage law to apply only to stealing stuff that someone is selling, so it couldn't be espionage to steal Goldman's high-frequency trading algorithms because the monetization plan didn't involve selling those algorithms to customers.

But just because walking out of Goldman with a pocketful of code isn't two particular federal crimes doesn't mean it's not some crime, somewhere, to somebody. As Aleynikov found out today:

A former Goldman Sachs Group Inc computer programmer who was cleared of federal charges in February faces new charges of illegally using and copying the firm's high-frequency trading code, according to an arrest warrant filed in Manhattan criminal court.

The charges, brought by the office of Manhattan District Attorney Cyrus Vance, are a new twist in a case first brought by U.S. federal prosecutors in July 2009. ... The felony arrest warrant, dated last week and signed by an FBI agent, charges Aleynikov with "unlawful use of secret scientific material" and "unlawful duplication of computer related material."

Notice the FBI agent: this is still the same investigation, into the same thing, run by the same federal agents, as the one that got tossed out last year. It's just that now a different set of prosecutors (the Manhattan DA's office) gets a crack at convincing a different set of courts (New York state courts) that walking out of Goldman with code is a different set of crimes. You can go read about which crimes here and here (or here*), with the delightful "secret scientific material" defined here as:

"Secret scientific material" means a sample, culture, micro-organism, specimen, record, recording, document, drawing or any other article, material, device or substance which constitutes, represents, evidences, reflects, or records a scientific or technical process, invention or formula or any part or phase thereof, and which is not, and is not intended to be, available to anyone other than the person or persons rightfully in possession thereof or selected persons having access thereto with his or their consent, and when it accords or may accord such rightful possessors an advantage over competitors or other persons who do not have knowledge or the benefit thereof.

Aleynikov's defense last time was basically that he thought he was taking open-source code and not secret stuff, certainly not micro-organisms anyway, and that would seem to be a defense here too: these crimes also require an intent to steal stuff you knew you weren't supposed to. But last time the jury didn't buy it, and the technicalities that just barely got him out last time don't seem to be available here. Perhaps other technicalities are.

It's a little difficult to figure out why someone who maybe stole code from Goldman years ago, and who already spent more than a year in prison for it on an invalid conviction, should be a priority for Manhattan prosecutors. The timing is perhaps suggestive. This week New York's Department of Financial Services launched a pretty aggressive attack on Standard Chartered for federal law violations that federal authorities were more or less okay with, and instantly catapulted himself from obscurity to relevance. (Now he gets to, like, meet Tim Geithner!) New York state regulators and prosecutors have long had a model of prestige that involves out-enforcing the feds, and winning a conviction that the feds couldn't manage would I guess be a feather in Cyrus Vance's perhaps under-feathered cap.

But why this conviction? Bringing down a major bank that is too cozy with federal regulators shows independence and toughness, but why further harass a guy who's already been pretty harassed by the feds? One possibility is that Aleynikov is going down not as a symbol of code-stealing, but as a symbol of high-frequency trading. New York's financial markets, you may recally, were recently whacked by an HFT algorithm screw-up, and there's at first glance not much city and state officials can do about it: Knight's operations, and the workings of the NYSE generally, are pretty firmly in the hands of the SEC. Perhaps they figured that jailing an HFT algorithm writer would be good for business, and poor Sergey Aleynikov is the one who'd be easiest to jail.

New charges for ex-Goldman programmer in code theft case [Reuters]

* "A person is guilty of unlawful duplication of computer related material the first degree when having no right to do so, he or she copies, reproduces or duplicates in any manner ... any computer data or computer program and thereby intentionally and wrongfully deprives or appropriates from an owner thereof an economic value or benefit in excess of two thousand five hundred dollars," while "A person is guilty of unlawful use of secret scientific material when, with intent to appropriate to himself or another the use of secret scientific material, and having no right to do so and no reasonable ground to believe that he has such right, he makes a tangible reproduction or representation of such secret scientific material by means of writing, photographing, drawing, mechanically or electronically reproducing or recording such secret scientific material." These are class E felonies, which seem to max out at about 4 years.


Sergey Aleynikov Is Dancing Again

One thing that I may have mentioned here is that, before I was lured to the blogging industry by the outrageous lucre on offer, I worked at this little establishment called Goldman Sachs. One thing that I probably haven't told you, but that I've mentioned to a few friends and co-workers, is that due to some frankly inexplicable confusion, the time between my telling people "I am leaving to go work for Dealbreaker" and my being escorted out of the building by active-duty Navy SEALS was somewhat longer than you might expect (viz. several nanoseconds). One thing that I've never told anybody, so let's keep it between us, is that I made good use of the delay to download certain files to a flash drive. I won't discuss all the details, since I'm using some of those files to set up my own high-frequency insider trading fund, but I will mention that with the right codes the voice recorders in the GS elevators can be accessed remotely.* One reason I never told anyone about this before is that Goldman takes it badly when people take stuff with them on the way out, and has a tendency to react by having them imprisoned for the better part of a decade. After today, though, it looks like I'm good to go:

Sergey Aleynikov Came Thisclose To Spending The Next Eight Years In Jail

One of my favorite recent acts of journalism is the Journal's amazing series about how everything you could possibly do is a federal crime, which is both a true fact with serious policy implications and also an important thing for you to remember if you want to stay out of federal prison, which I do; you may disagree but you are wrong. Here's a pro tip though that you will not (yet) find in the Journal series: there is a decent chance that reading Dealbreaker is a federal crime where you are. The reason for that is that there is a federal statute that says that if (1) there is a computer and (2) someone tells you not to do a thing on it and (3) you do that thing on that computer, then (4) PRISON! And if you work in finance then (1) yes, (2) maybe?,* (3) yes, and (4) no but it could happen. An important qualifier to that is: as of yesterday, if you're in California, feel free to read Dealbreaker from your work computer. Hell, go nuts, check Facebook. That's what a Federal appellate court ruled yesterday, finding against the government, who were prosecuting a guy named David Nosal for violating his employer's computer use policy. Here's how the court characterized what the government wanted: