Accused Goldman Code Thief Takes On Vance After Defeating U.S.

The former Goldman Sachs Group Inc. programmer accused of stealing the bank’s “secret sauce” beat back the federal government’s attempt to keep him in jail. Now he’s decided to fight state prosecutors to clear his name.

Sergey Aleynikov, who spent almost a year in prison before his federal conviction was thrown out, was in the clear for six months before Manhattan District Attorney Cyrus Vance Jr. brought state charges.

Vance claims Aleynikov stole Goldman Sachs’ high-frequency trading code when he left for a new job. The Russian-born programmer denied Vance’s charges, and rejected his offer to plead guilty in exchange for not serving more time. He now faces as long as four years behind bars if convicted, in a trial set to start Monday.

Such a second bite at the apple for prosecutors is rare, but legal. States can prosecute the same crime as the U.S. government without triggering the ban known as double jeopardy. The exception is often reserved for the most extreme cases, such as Oklahoma City Bombing accomplice Terry Nichols, convicted by the U.S. and Oklahoma in the 1995 terrorist attack that killed 168 people.

“It’s audacious to be taking a case like this,” said Eugene O’Donnell, a lecturer at New York’s John Jay College of Criminal Justice, of Vance’s decision to pursue Aleynikov after he escaped federal charges. “They’ve got to keep their fingers crossed that they get it right.”

Prosecutors called the Goldman Sachs computer code the bank’s “secret sauce.” In the Aleynikov case, the second prosecution may make sense to Vance because state law is clearer than federal law when it comes to technology crimes, said Bennett Gershman, a professor at Pace Law School in White Plains, New York.

The U.S. appeals court ruling throwing out the federal conviction because the laws used were a bad fit was a “clear invitation” for Vance to step in, Gershman said.

Flash Boys

Aleynikov, 45, whose 2009 arrest served as an inspiration for author Michael Lewis’ best-selling book “Flash Boys,” was the first of a group to be charged by Vance with stealing intellectual property from financial firms.

New York state prosecutors may have greater ability to navigate tech crime because actions such as copying computer data, stealing secrets and using scientific material for improper purposes mesh better with state law, Gershman said.

Vance began filing charges in such cases as Wall Street became increasingly protective of trading models and software code. Firms seeking millisecond advantages over rivals through strategies such as high-speed trading rely on technology to win.

Two Sigma

In February, Kang Gao, a former analyst at the quantitative hedge fund Two Sigma Investments LLC, pleaded guilty in state court in Manhattan to taking that firm’s data. He was sentenced to a 10 month term.

His plea came a day after Jason Vuu, of San Jose, California, was sentenced in the same court to five years’ probation. He was charged with stealing computer source code and strategies from Flow Traders, an Amsterdam-based trading house.

Vuu was charged by Vance in 2013 along with another ex-Flow Traders employee, Glen Cressman, of Fort Lauderdale, and Vuu’s former roommate, Simon Lu, of Pittsburgh.

Cressman pleaded guilty in December, and Lu pleaded guilty last month.

“We can and have successfully prosecuted individuals for stealing computer source code and we look forward to beginning the trial on Monday,” said David Szuchman, Vance’s chief of investigations.

Airport Arrest

Aleynikov’s journey through the federal and state criminal justice systems began six years ago.

FBI agents arrested him at Newark Liberty International Airport in New Jersey in July 2009 as he returned from Chicago, where he had taken 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.

Convicted by a jury in Manhattan federal court in 2010, he was sentenced to eight years in prison. In 2012, his conviction was reversed.

New Trial

Despite his advantage under state law, Vance won’t have some of the evidence deployed by federal prosecutors.

A New York judge in June ruled Aleynikov’s arrest was illegal and barred prosecutors from using statements he made at the airport, or computer hardware carrying the allegedly stolen code. They will be allowed to use statements he made at FBI headquarters following his arrest.

Aleynikov’s attorney, Kevin Marino, has called the state’s case vindictive.

He lost a bid in April 2013 to throw out the charges on the grounds that they constituted double jeopardy.

Marino declined to comment on the trial. David Wells, a spokesman for New York-based Goldman Sachs, declined to comment on the case.

Dual Sovereignty

The concept allowing a state and federal prosecution on the same facts is called dual sovereignty. Jennifer Arlen, a professor at New York University School of Law, said it’s “perfectly acceptable” for one government to proceed with charges based on the same conduct if the other fails.

“Many people think that double jeopardy means you can’t be charged twice for the same crime,” said Arlen, an expert on corporate crime. “If the federal government charges you and loses, it cannot come after you again. But a state government can.”

The case is New York v. Aleynikov, 04447-2012, New York State Supreme Court, New York County (Manhattan).

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