Ex-Goldman Programmer Aleynikov Arraigned in New York

Former Goldman Sachs Group Inc. (GS) computer programmer Sergei Aleynikov was charged under New York law with stealing internal bank code after successfully fighting similar federal accusations.

Aleynikov, 42, was arraigned today in Manhattan criminal court on state charges of unlawful use of scientific material and duplication of computer-related material, both felonies, according to a statement from the office of Manhattan District Attorney Cyrus R. Vance Jr. He was released on $35,000 bail immediately after court.

“This code is so highly confidential that it is known in the industry as the firm’s ‘secret sauce,’” Vance said. “Employees who exploit their access to sensitive information should expect to face criminal prosecution in New York State in appropriate cases.”

Aleynikov was freed earlier this year after his conviction in Manhattan federal court for stealing the bank’s high-speed trading code was reversed by a U.S. Court of Appeals in New York. He had been convicted in December 2010.

Federal prosecutors claimed that, on his last day of work at New York-based Goldman Sachs in June 2009, Aleynikov uploaded hundreds of thousands of lines of source code from the firm’s high-frequency trading system.

Circumvented Security

The federal government alleged that he circumvented Goldman Sachs’s security, sent the code to a server in Germany, compressed and encrypted it, and took it with him to a meeting with new employers in Chicago.

U.S. prosecutors said Aleynikov made about $400,000 a year developing computer code for Goldman Sachs from 2007 to 2009. They said he wanted the code as a “cheat sheet” to start a system at his new job with Teza Technologies LLC, a trading firm in Chicago that had offered him $1.2 million including salary, bonus and profit sharing. Teza suspended Aleynikov after his arrest and subsequently fired him.

The state allegations are similar to the federal accusations and are based on the “same basic set of facts,” said his attorney, Kevin Marino, of the firm of Marino Tortorella PC in Chatham, New Jersey.

“Mr. Aleynikov spent a year in prison for a federal crime he did not commit,” Marino said in an interview before the arraignment. “It’s hard to imagine the authorities would find it appropriate to pursue state charges arising from the same set of facts. But apparently that is what they’ve decided to do. We look forward to defending him.”

Born in Russia

Aleynikov, a naturalized U.S. citizen born in Russia who now lives in West Orange, New Jersey, was serving an eight-year prison sentence at the time his conviction was overturned.

A smiling, handcuffed Aleynikov appeared in court today wearing a striped T-shirt, plaid shorts and sneakers. He declined to comment to reporters after pleading not guilty to the new charges before Judge Robert Mandelbaum.

Unlawful use of scientific material and duplication of computer-related materials are both class E felonies, which carry a maximum sentence of four years in prison, according to the New York state penal code.

Prosecutors asked the judge to impose $100,000 bail, arguing that they secured an arrest warrant because they had learned he was taking steps to recover his U.S. and Russian passports that had been seized.

Defense Attorneys

Marino asked Mandelbaum to release Aleynikov without bail, saying his client intends to appear in court to defend himself against the new charges.

Aleynikov hasn’t been “gainfully employed” since he left Goldman Sachs and ran out of money to defend himself before trial, Marino, who said he’s representing Aleynikov “voluntarily,” told the judge. Aleynikov’s marriage “disintegrated” after his arrest and he sees his children every other week, Marino said.

“It’s clearly a vindictive prosecution and we cannot wait for the opportunity to first defend these charges and then finally go on the offensive,” Marino said after the arraignment. “Right now if you’re Sergei Aleynikov you’re wondering, ‘Why would I ever leave Russia to come to the United States?’”

Aleynikov is scheduled to return to court on Aug. 15, when he will learn whether a grand jury has decided to indict him on the new charges.

The federal case is U.S. v. Aleynikov, 11-1126, U.S. Court of Appeals for the Second Circuit (Manhattan).

To contact the reporter on this story: Chris Dolmetsch in New York at cdolmetsch@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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