Aleynikov on the Hook Again for Taking HFT Code From Goldman

Updated on
  • N.Y. appeals court reinstates programmer’s theft conviction
  • Seven-year legal roller coaster ride continues for Aleynikov

Former Goldman Sachs Group Inc. programmer Sergey Aleynikov is guilty of theft -- again -- for taking the bank’s high-frequency trading code to a new job.

Theft is theft, whether information is taken in digital form or in boxes of documents, a New York state appeals court ruled Tuesday in reinstating Aleynikov’s conviction.

“It would be incongruous to allow a defendant to escape criminal liability merely because he made a digital copy of the misappropriated source code instead of printing it onto a piece of paper,” the panel said.

Aleynikov, a native of Russia, must return to court to be sentenced, unless his lawyers can win one final appeal before the state’s highest court in Albany. His misfortunes helped inspire Michael Lewis’s 2014 book “Flash Boys” and spurred debate over whether intellectual-property disputes between companies and employees should be resolved through criminal charges or civil lawsuits. His case has been closely watched by financial firms as they rely more heavily on computer-driven trading strategies and hire programmers to implement them.

The decision could help embolden prosecutors in New York and elsewhere to bring charges in other cases where the alleged conduct is similar, said Bennett Gershman, a professor at Pace University’s Elisabeth Haub School of Law in White Plains, New York.

"It might certainly suggest to prosecutors that if they’re in doubt in these areas where there isn’t a lot of case law and you have these statutes dealing with electronic crimes, that they certainly can test the waters," said Gershman, who worked as a prosecutor in the Manhattan District Attorney’s Office for six years.

The prosecution stems from Aleynikov’s departure from Goldman for a $1.2 million-a-year job with Teza Technologies LLC, a Chicago-based firm founded by former Citadel LLC high-frequency trading chief Misha Malyshev. Aleynikov admitted taking code as he prepared to leave but, he said, the files were intended only as research for his new job.

He faces as long as four years in prison, although prosecutors have said they aren’t seeking to incarcerate him further.

Aleynikov’s lawyer, Kevin Marino, said he will immediately seek a review at the state’s highest court.

“Mr. Aleynikov’s source code copying did not violate that criminal statute -- just as it has been found not to violate the other federal and state statutes with which he was charged,” Marino said in a statement. “We remain confident that, as he has in the past, Mr. Aleynikov will successfully resist the District Attorney’s Goldman-Sachs driven attempt to criminalize his conduct.”

Roller Coaster

The father of three spent seven years on a legal roller coaster. Arrested on federal charges in 2009, he was convicted and served a year in prison before a U.S. appeals court tossed out the jury’s verdict. Manhattan District Attorney Cyrus Vance Jr. then brought state charges, and another jury convicted him, only to have the trial judge dismiss that verdict as well.

The decision is a “big victory” for Vance and helps to enhance his reputation as a “no-nonsense” prosecutor who will aggressively prosecute financial fraud, Gershman said.

"He was subjected to a lot of criticism for bringing prosecutions that were not well founded on the law and the facts and some of those criticisms were proper," Gershman said. "But in this case he was criticized for going too far in using a state prosecution after the federal government had lost and he was criticized for overreaching and as it turned out he didn’t overreach."

Vance Reaction

Vance said the ruling shows that the theft of intellectual property is a crime no matter how it’s taken.

“No company wants to do business in a market where someone can steal its work product without consequences," Vance said in a statement.

The state appeal turned on technical legal questions. Justice Daniel Conviser’s decision to throw out the conviction was based on his finding that Aleynikov made only an electronic copy of the code and not a physical, or “tangible,” reproduction, as required under a state law.

The appeals panel rejected Conviser’s reasoning.

The trial judge’s finding “makes little sense,” given that a compact disc or a thumb drive are both “unquestionably tangible,” the appeals panel said. “The trial court’s position also ignores the trial evidence that a hard drive can be taken out of the server.”

Antiquated Law

Marino had argued that prosecutors are attempting to shoehorn his 21st Century conduct into antiquated state laws that don’t apply. Aleynikov was charged under a 1967 law covering the illegal use of secret, scientific material. Even in a post-Internet era, the law still applies, the appeals panel said.

“The statute was drafted with broad generalized language that fits squarely into today’s digital world,” the panel said.

The case is New York v. Aleynikov, 4447/2012, New York State Supreme Court, New York County (Manhattan).

(Updates with comments from law professor, prosecutor and defense attorney starting in fifth paragraph.)
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