Goldman Ex-Programmer Sues FBI Agents Who Arrested Him

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The former Goldman Sachs Group Inc. computer programmer who inspired Michael Lewis’s best-seller “Flash Boys” filed a malicious-prosecution lawsuit against the FBI agents who helped send him to prison for a year before his conviction was reversed.

Sergey Aleynikov, wrongly convicted of stealing the bank’s high-frequency trading code in 2009, claims agents arrested him without probable cause and violated his constitutional right against unreasonable search and seizure. The FBI did the bidding of Goldman Sachs by arresting him, he said in his complaint in federal court in Newark, New Jersey.

Goldman Sachs used its “enormous influence” over the FBI and showed it’s “willing and able to use the American criminal justice system as its own private enforcement arm,” according to the complaint filed Thursday, which seeks unspecified compensatory and punitive damages.

Aleynikov, a naturalized U.S. citizen born in Russia, was convicted by federal jurors in New York of economic espionage and other crimes in 2010. Sentenced to eight years and one month in prison, he was serving time at a prison camp in Fort Dix, New Jersey, when an appeals court overturned the conviction. The court said the indictment didn’t properly allege a crime.

Another Case

Months later, Manhattan District Attorney Cyrus R. Vance Jr. filed an intellectual-property theft case against Aleynikov. With Wall Street becoming increasingly protective of its trading models and software code, Aleynikov, 45, became one of a small group of analysts and programmers charged with crimes. The case is pending. Aleynikov denies wrongdoing.

In his lawsuit, Aleynikov blames the agents for the loss of a $1 million-a-year job, his life savings and his ability to work as a programmer. He said the FBI also violated his rights by transferring his property to Vance.

“The unlawful retention and transfer of Aleynikov’s property -- like the malicious prosecution that preceded it, which was initiated while he was under arrest and in custody without probable cause -- was a violation of his Fourth Amendment rights,” according to the complaint.

‘Small Portion’

Aleynikov’s arrest by the FBI came after Goldman Sachs learned he had transferred outside the firm “a relatively small portion” of code on the bank’s HFT platform, according to the complaint. The bank “falsely represented” to the FBI that Aleynikov “had stolen Goldman Sachs’s entire HFT infrastructure,” it said.

Agents arrested Aleynikov after he stepped off a plane from Chicago, where he took a job with Teza Technologies LLC, the firm founded by former Citadel Investment Group LLC high-frequency trading chief Mikhail Misha Malyshev. Teza suspended Aleynikov after his arrest and later fired him.

In the New York state case, a judge ruled the 2009 arrest was illegal. He threw out seized physical evidence, including computer hardware carrying the source code.

New York State Supreme Court Justice Ronald Zweibel also barred prosecutors from using statements Aleynikov made to the FBI after his arrest at Newark Liberty International Airport. He allowed them to use statements he made at the agency’s New York office, because those were voluntary.

Aleynikov’s story was recounted by Bloomberg View columnist Michael Lewis in Vanity Fair and became the foundation for “Flash Boys,” which argues that high-frequency traders, exchanges and broker-dealers have rigged the stock market. The book has brought increased scrutiny of the practice in the U.S.

Christos Sinos, a spokesman for the FBI in New York, declined to comment on Aleynikov’s lawsuit. Andrew Williams, a spokesman for New York-based Goldman, declined to comment.

The case is Aleynikov v. McSwain, U.S. District Court, District of New Jersey (Newark). The state case in New York is New York v. Aleynikov, 04447-2012, New York State Supreme Court, New York County (Manhattan).

(Corrects to include programmer’s first name in second paragraph.)
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