Photographer: Ron Antonelli/Bloomberg

Goldman Is Spared Legal Fees in Ex-Programmer’s Theft Case

Updated on
  • Delaware Supreme Court finds VP title didn’t warrant coverage
  • Aleynikov sought reimbursement after criminal charges tossed

A former Goldman Sachs Group Inc. programmer who was cleared of charges he stole the investment firm’s computer-trading codes lost his bid to force the bank to pay for the lawyers who won his case.

The Delaware Supreme Court concluded Friday that Sergey Aleynikov, though he had a vice president’s title, wasn’t entitled to reimbursement from the bank because he didn’t have the managerial authority of a corporate officer.

The ruling means Aleynikov may be on the hook personally for more than $7 million in legal fees billed by his lawyers while fighting the code-theft charges and lawsuits against him by Goldman Sachs. Michael DuVally, a Goldman Sachs spokesman, said the company was pleased with the decision.

While the Delaware court ruled against the programmer, his lawyer said the decision won’t stop efforts to use a suit in federal court in New Jersey to force Goldman Sachs to pick up the attorneys’ tab.

“We intend to ask the judge in New Jersey to enter a judgment for Mr. Aleynikov on the question” of whether he was a corporate officer entitled to have his legal fees covered by the bank, said Kevin Marino, the programmer’s attorney.

The Russian immigrant was arrested in 2009 after leaving Goldman Sachs to join Teza Technologies LLC. Prosecutors accused him of uploading hundreds of thousands of lines of allegedly propriety code from the firm’s high-frequency trading system on his last day of work. Aleynikov’s lawyers argued the information he took was based on open-source code.

Conviction Overturned

His federal theft conviction in December 2010 was overturned in 2012. Three years later, a judge threw out related state-court charges. New York prosecutors are appealing that decision. After being cleared, Aleynikov sued Goldman Sachs in New Jersey in 2012 over his defense lawyers’ fees. The following year, a judge ordered Goldman Sachs to pay Aleynikov $2.3 million. 

A federal appeals court in Philadelphia overturned that decision in 2014, ruling that ambiguity in Goldman Sachs’s bylaws must be decided under the law in Delaware, where the bank is incorporated. Goldman Sachs countersued in New Jersey, claiming its former employee breached his duty by “misappropriating” the codes. 

In February 2015, Aleynikov sued Goldman Sachs in Delaware Chancery Court for more than $500,000 in fees tied to Goldman’s counterclaim. Judge Travis Laster rejected Aleynikov’s claims in July 2016 because he couldn’t prove all junior executives qualified as officers under the bank’s bylaws.

Laster also concluded he was bound by the U.S. Third Circuit Court of Appeals ruling and Aleynikov couldn’t relitigate issues about the ambiguity of who qualified as a Goldman Sachs corporate officer. Marino argued the judge didn’t have to follow the federal appeals court’s reasoning.

In Friday’s ruling, Delaware Supreme Court Chief Justice Leo Strine said Laster was correct in following the appeals court ruling.

The Delaware case is Aleynikov v. Goldman Sachs Group Inc., No. 366, 2016, Delaware Supreme Court (Dover). The New Jersey said is Aleynikov v. Goldman Sachs Group, 15-cv-2057, U.S. District Court for the District of New Jersey (Newark).

(Updates with comment from Aleynikov’s lawyer in sixth paragraph.)
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