‘Flash Boys’ Programmer in Goldman Case Prevails Second Time

Sergey Aleynikov
Former Goldman Sachs programmer Sergey Aleynikov. Photographer: Jin Lee/Bloomberg

A former Goldman Sachs Group Inc. programmer who took the firm’s high frequency trading code when he left for another job was exonerated a second time after a judge ruled what he did wasn’t a crime.

Sergey Aleynikov, whose saga helped inspire Michael Lewis’s “Flash Boys,” was tried by New York prosecutors who took up the case after a federal conviction unraveled. His defense both times was that his actions were a disagreement between him and the bank better suited for civil litigation.

A state judge agreed, lining up behind a federal appeals court that found in 2012 existing criminal laws are a bad fit.

Aleynikov, 45, still faces a potential appeal by Manhattan District Attorney Cyrus R. Vance Jr., though the prosecutor has said he won’t seek prison time for Aleynikov, who spent a year behind bars in the federal case.

“We think this defendant committed a crime,” Joan Vollero, a spokeswoman for Vance, said in an e-mail. “If what Sergey Aleynikov did isn’t a crime, then every company that values its intellectual property should be concerned.”

Two Prosecutions

Both prosecutions raised questions about how intellectual property disputes between companies and employees should be resolved, especially on Wall Street. Defense lawyers argued Aleynikov sought to copy “open-source” or public code, and that he tried to hide his actions only because he knew they violated bank policy.

His subsequent trip through two criminal justice systems has been closely watched by financial firms as they seek to hire ever more programmers to implement their trading strategies.

In the state case, the judge took the uncommon step of reserving his right to set aside the jury’s guilty verdict, delivered in May. Defense attorneys had asked him to dismiss it, arguing there was no evidence Aleynikov made a “tangible” reproduction of the code or benefited from having it, both requirements under New York law.

Missing Elements

Justice Daniel Conviser agreed, adding that prosecutors also didn’t prove Aleynikov intended to steal “secret scientific material,” another prerequisite for conviction.

“The issues in this case have never been easy,” Conviser wrote. “We update our criminal law in this country, however, through the legislative process. Defendants cannot be convicted of crimes because we believe as a matter of policy that their conduct warrants prosecution.”

Defense lawyer Kevin Marino Monday called on Vance to drop the case.

“That Cyrus Vance would pursue this prosecution after Mr. Aleynikov spent a year in federal prison for crimes he did not commit is appalling,” Marino said.

Vollero said no decision has been made on whether to appeal.

Stock Market

In his book, Lewis used Aleynikov’s travails as part of a larger theme that high-frequency trading is rigging the U.S. stock market.

A naturalized U.S. citizen originally from Russia, Aleynikov worked for Goldman Sachs from 2007 to 2009. He was convicted on one count of unlawful use of secret scientific material following eight days of often surreal deliberations in a Manhattan court.

Most of the facts in the trial weren’t in dispute. Aleynikov admitted he uploaded the code to a server in Germany, and then downloaded it to his personal computers. His attorneys argued that most of what he took was open-source code, and not bank property.

Aleynikov, a father of three, was first arrested by FBI agents in July 2009 after stepping off a plane in New Jersey. He was returning from Chicago, where he had taken a $1.2 million-a-year job with Teza Technologies LLC, a company founded by former Citadel LLC high-frequency trading chief Misha Malyshev. Teza suspended Aleynikov after his arrest and later fired him.

A federal jury in New York convicted Aleynikov in 2010 and he was sentenced to eight years in prison. He served about a year before the U.S. Court of Appeals in Manhattan reversed his conviction.

Six months later, Aleynikov was indicted on state charges, becoming the first of a group of employees of financial firms to be charged by Vance’s office with stealing intellectual property.

No Deal

Having rejected a plea deal that carried no jail time, Aleynikov’s conviction carried the possibility of a four-year term.

Vance’s prosecutors lost pre-trial motions in Aleynikov’s case and were often criticized by the judge. Jury deliberations were punctuated by repeated requests to review testimony and define words, and two jurors were dismissed after one accused the other of trying to poison her lunch.

Any appeal by Vance would probably focus on the language of the New York statutes cited in the indictment, one of which, unlawful use of secret scientific material, was passed in 1967 and was little used before the Aleynikov case.

For his part, Aleynikov has taken the fight to Goldman Sachs and the Federal Bureau of Investigation agents who arrested him. In federal court in New Jersey, he sued the agents for malicious prosecution and is seeking to have the firm pay for the cost of his defense.

Marino, his attorney, said the cost of the defense has topped $7 million.

Michael DuVally, a spokesman for New York-based Goldman Sachs, declined to comment on the decision.

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