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<div class="KonaFilter image-container display-table float_right"><div><div class="image on-image"></div></div></div>Ex-Goldman Sachs programmer Sergey Aleynikov <a href="http://www.nytimes.com/2015/05/02/business/dealbook/ex-goldman-programmer-found-guilty.html">was found guilty </a>by a jury on Friday of stealing the bank's high-frequency trading code. This is Aleynikov's second conviction, after his first one in federal court on similar charges was overturned. This criminal case, in New York state court, was again marked by plenty of <a href="http://nypost.com/2015/04/29/jurors-trade-poisoning-and-slander-accusations-at-ex-goldman-programmers-trial/">courtroom drama and weirdness</a>, including a bizarre dispute between two jurors over an allegedly poisoned avocado sandwich.Jurors convicted Aleynikov on one count of code theft, deadlocked on another similar count, and found him not guilty of a third count.The latest chapter in the saga marks yet another twist in the winding tale of the programmer and the investment bank. They have spent almost a decade embroiled in legal battle. Aleynikov's case was highlighted in "Flash Boys," the latest bestseller by Michael Lewis. Aleynikov was first arrested in 2009 and convicted the following year of stealing code from Goldman Sachs to take to Teza Technologies, <a href="http://dealbook.nytimes.com/2010/12/10/ex-goldman-programmer-is-convicted/">which recruited him away</a> from his $400,000-a-year job at the bank. Like most investment banks and hedge funds, Goldman relies on proprietary code as part of its <a href="http://www.businessinsider.com/goldman-sachs-has-more-engineers-than-facebook-2015-4">complex trading technology.</a> He was sentenced to eight years in prison, but only spent 11 months behind bard before his conviction was overturned in 2012, <a href="http://dealbook.nytimes.com/2012/02/17/court-overturns-conviction-of-ex-goldman-programmer/">without explanation</a>.Then, in 2014, it was announced that Aleynikov would go back on trial in state court. Goldman Sachs did not immediately respond to a request seeking comment. <div class="margin-top"> <h3>NOW WATCH: <a href="http://www.businessinsider.com/dishonest-with-your-partner-affair-relationships-esther-perel-2015-4">Why telling your partner everything can do more harm than good</a></h3> <div> <div> <div class="ooyala-video-player" data-video-autoplay="false" data-video-id="NjanNqdDoQkrZdj9hT6zPXj5YJBjVJhT" data-player-variable="ooyalapopvideo" id="ooyalaplayer_popvideo" style="width:1280px;height:720px"></div> </div> </div> </div>

Goldman programmer found guilty of stealing bank's high-frequency trading code

<div class="KonaFilter image-container float_right"><div class="image on-image">Reuters/Chip EastSergey Aleynikov departs from federal court in New York February 17, 2010. </div></div>Ex-Goldman Sachs programmer <a href="http://en.wikipedia.org/wiki/Sergey_Aleynikov">Sergey Aleynikov</a> was arrested four years ago after the bank told authorities he stole top-secret code before leaving to join a startup.
Now, in an ironic twist, a judge has ordered Goldman to pay some of Aleynikov's legal fees since he was technically an employee of the bank when he allegedly stole the code, The New York Times' <a href="http://dealbook.nytimes.com/2013/10/22/judge-orders-goldman-to-pay-programmers-legal-bills/?ref=business&amp;_r=0">Peter Lattman reports</a>. The bank's bylaws say it has to pay the lawyer fees of employees charged in connection with their roles as officers at Goldman, and Aleynikov had the title of "vice president." 
"Goldman may understandably find the result galling; it believes that Aleynikov has stolen its property," Judge Kevin McNulty wrote. "If there is any comfort, it may lie in the fact that Goldman has also indemnified and advanced fees in cases where the conduct was alleged to be unlawful and, in the broader sense, no less harmful to Goldman."
The case of Sergey Aleynikov is truly bizarre. The father of three <a href="http://nymag.com/daily/intelligencer/2010/12/goldman_sachs_vp_sergey_aleyni.html">was found guilty</a> of stealing computer source code for high-frequency trading in 2010 and sentenced to eight years in federal prison. In 2012 the Second Circuit Court of Appeals overturned that conviction, finding the federal government was wrong to prosecute him under espionage laws.
He was <a href="http://dealbook.nytimes.com/2012/08/09/ex-goldman-programmer-is-arrested-again/">arrested again</a> less than six months later after Manhattan District Attorney Cyrus Vance charged him with state crimes related to the very same stolen code. He was freed on bail and is currently fighting the state charges.
Michael Lewis laid out the complicated case against Aleynikov in an <a href="http://www.vanityfair.com/business/2013/09/michael-lewis-goldman-sachs-programmer">excellent Vanity Fair article</a> last month. In 2009, while he was working for Goldman, he got an offer to launch a trading platform for a new hedge fund. He jumped on it but agreed to remain at Goldman for six weeks.
Four times during that period, he sent himself source code he'd been working on - <a href="http://en.wikipedia.org/wiki/Open_source">open source code</a> available to the general public mixed in with code that was Goldman's property, according to Lewis. He later told FBI agents that he planned to separate the codes later, and that he needed to keep the open source code so he would know how to replicate it in the future.
Aleynikov knew what he was doing wasn't technically allowed, but he told Lewis it felt like "speeding in the car."
After serving more than a year in prison for his infraction, Aleynikov has to contend with the Manhattan DA. Usually, you can't be charged with the same crime twice (a practice known as "double jeopardy"), but the DA was able to get around that issue by charging him with state-law violations.
Judge McNulty is forcing Goldman to advance him fees necessary to fight the state case, <a href="http://dealbook.nytimes.com/2013/10/22/judge-orders-goldman-to-pay-programmers-legal-bills/?ref=business&amp;_r=0">the New York Times reported</a>. That amount is already more than $700,000. In another ironic twist, Goldman has to pay Aleynikov for "reasonable fees" he incurred while fighting the dispute over legal fees - that's $1.1 million, an amount that Goldman can dispute.
The judge also said there should be further inquiry into whether Goldman has to pay its former programmer back for the $2.3 million he spent fighting the federal case.
All told, Goldman could end up paying $4 million to the lawyers who fought the case it asked prosecutors to bring in the first place.

Goldman Sachs Ordered To Pay Huge Legal Fees Of A Guy Who Allegedly Stole From The Bank

<div class="image-container float_right" style="width:480px"><div class="image">ReutersSergey Aleynikov waits in Manhattan Criminal Court on August 9, 2012.</div></div>Financial author <keyword id="125707" type="PERSON" weightage="60" keywordseo="Michael-Lewis">Michael Lewis</keyword> has a sprawling <a href="http://www.vanityfair.com/">new piece in Vanity Fair</a> about former <keyword id="6361649" type="CITY" weightage="60" keywordseo="Goldman-Sachs">Goldman Sachs</keyword> programmer Sergey Aleynikov, who was tried, convicted, and then later acquitted of stealing high-frequency trading proprietary code from Goldman's servers.
Lewis' "Goldman's Geek Tragedy" paints a more nuanced picture of Aleynikov, a soft-spoken Russian computer genius who was picked up by the FBI for "stealing" Goldman code and trotting it off to use at another firm.
Aleynikov, once Goldman's star programmer earning $400,000 a year, felt the full brunt of Goldman's wrath. "Goldman Sachs’s role in the trial was to make genuine understanding even more difficult. Its lawyers coached witnesses; its employees, on the witness stand, behaved more like salesmen for the prosecution than citizens of the state," Lewis writes.
In Lewis' telling, that "secret sauce" code was anything but. Mostly open-source information that wouldn't even help Aleynikov at his new firm.
One of Lewis' sources uses the example of a spiral notebook you keep by your desk to jot down thoughts and ideas. If you left your job for another one, you'd take the notebook with you. It's not that the pages would necessarily give you an advantage in the future, it's that they are your notes.
Goldman disagreed. They alerted the FBI and sought to make an example of Aleynikov, who comes off as a brilliant, misunderstood patsy in the story. Goldman comes off as ruthless.
Here's why. From Vanity Fair:
As one [market insider] put it, “Every manager of a <keyword id="42111" type="COMPANY" weightage="60" keywordseo="Wall-Street">Wall Street</keyword> tech group likes to have people believe that his guys are geniuses. Their whole persona among their peers is that what they and their team do can’t be replicated. When people find out that 95 percent of their code is open-source, it kills that perception. So when the security people come to them and tell them about the downloads, they can’t say, ‘No big deal.’ And they can’t say, ‘I don’t know what he took.’” 
To put it another way: the process that ended with Serge Aleynikov sitting inside a federal prison may have started with some Goldman Sachs employees concerned about their bonuses.
A source at Goldman <a href="http://www.businessinsider.com/goldman-response-to-vanity-fair-article-2013-7">viewed the piece as pretty one-sided</a>.
Lewis certainly makes his views known, but breaks down a complicated financial story in a way that <a href="http://www.amazon.com/The-Big-Short-Doomsday-Machine/dp/0393072231">only he can</a>. The full story, on newsstands today, is definitely worth a read.

New Michael Lewis Story Makes Goldman Sachs Look Absolutely Ruthless

<div class="KonaFilter image-container display-table float_right"><div><div class="image"></div></div></div>Things are looking up for Sergey Aleynikov, the ex-Goldman Sachs programmer accused of stealing code from the bank before leaving for a high-frequency trading firm.Charges in that case have been tossed out, according to Bloomberg.Aleynikov's case was part of the inspiration for Michael Lewis' book, "Flash Boys," about high-frequency trading.After leaving Goldman Sachs in 2009, he faced a federal trial, was convicted of violating a corporate espionage law, spent time in jail, and then was set free after an appeals court threw out the federal conviction.Then he was brought back to court on state charges. That's the case at hand now.Earlier this year, a jury in New York convicted <a href="http://www.businessinsider.com/goldman-programmer-found-guilty-of-code-theft-aleynikov-2015-5">Aleynikov on one count of code theft</a>, acquitted him on another, and deadlocked on a third. He almost fased a mistrial because jurors could not get along.Now, <a href="http://www.bloomberg.com/news/articles/2015-07-06/-flash-boys-programmer-in-goldman-theft-has-charges-tossed-out-ibrz5tyj">according to Bloomberg</a>, a judge has "handed a defeat to New York prosecutors who brought charges after their federal counterparts foundered."

Charges against the ex-Goldman programmer who inspired a Michael Lewis book have been dropped

<div class="KonaFilter image-container display-table float_right"><div><div class="image"><a href="https://www.flickr.com/photos/ginnerobot/4412096948">Ginny / Flickr, CC</a></div></div></div>The Manhattan District Attorney's Office has become more aggressive against people stealing intellectual property from financial institutions to the next level. 
Former Two Sigma Investments analyst Kang Gao was accused of stealing trade secrets earlier this year and is facing a potential four-year prison sentence, <a href="http://www.bloomberg.com/news/2014-07-17/wall-street-techs-take-secrets-to-next-job-at-their-peril.html">Bloomberg's Chris Dolmetsch and Tiffany Kary reported</a>. 
New York State Supreme Court Justice Jeffrey Oing told Bloomberg that this is the first lawsuit he's seen to rise to a level or criminal indictment. This is also the first time Two Sigma has had an employee jailed for stealing the hedge fund's secrets.
Leading the charge is District Attorney Cyrus Vance Jr. Vance has been pushing for stricter laws to protect Wall Street firms from theft of coding software and trade models. 
Disputes over cyber information have grown more prominent as finance has become computerized. The challenge for Vance is changing existing laws to include protection of technology secrets, and proving these thefts are harmful to markets and the general public.
Vance is also pursing former Goldman Sachs programmer Sergey Aleynikov, and former Flow Trader employees Jason Vuu and Glen Cressman. Aleynikov was sentenced in 2010 to eight years in prison, but his verdict was overturned one year in. Since then, the protection of products and services has been added to the U.S. Economic Espionage Act. 
Gao's attorney Marc Agnifilo told Bloomberg that leaving these cases to prosecutors is actually easier than hiring a private law firm. 
"What you're starting to see now is these companies, rather than paying money for a private law firm, go to the district attorney's office and have the district attorney's office do their bidding. The district attorney's office is certainly better at it -- they hold people in jail."
Oing said he believes this case will establish a precedent for sending more analysts and programmers to jail as a consequence of stealing tech secrets.
"That, perhaps, may now be opening the door for all employers to think 'You know what, we are going to put these guys in jail now,'" he told Bloomberg. "That is going to be really something."
<a href="http://www.bloomberg.com/news/2014-07-17/wall-street-techs-take-secrets-to-next-job-at-their-peril.html">Read the full story at Bloomberg »</a>

Punishment For Stealing Wall Street Software Is Becoming Very Harsh

<div class="KonaFilter image-container display-table float_right"><div><div class="image"><a href="http://www.amazon.com/Flash-Boys-Wall-Street-Revolt/dp/0393244660/ref=sr_1_1?s=books&amp;ie=UTF8&amp;qid=1396021245&amp;sr=1-1&amp;keywords=flash+boys">Amazon.com</a></div></div></div>Michael Lewis and his publisher have done an excellent job keeping the details of his new book, '<a href="http://www.amazon.com/Flash-Boys-Wall-Street-Revolt/dp/0393244660">Flash Boys: A Wall Street Revolt'</a>, completely under wraps, but some details are leaking out.
The book is about high frequency trading, and a firm called IEX that has created a separate exchange where everyone - fast or super fast - is safe to trade. This is a controversial topic on Wall Street as the question of whether or not HFT firms hurt the market or not is still in the air to some.
Those that say it does blame HFT for 2010's terrifying Flash Crash and other stock exchange stumbles. Critics say that firms that trade at high speeds can harm other actors in the market, and even cheat them out profitable trades. The SEC, New York Attorney <a href="http://www.businessinsider.com/schneiderman-endorses-batch-auctions-2014-3">General Eric Schneiderman,</a> and even <a href="http://www.businessinsider.com/goldman-sachs-just-threw-stock-exchanges-under-the-bus-2014-3">Goldman Sachs</a>, agree with that. Here's what Goldman told the <a href="http://blogs.wsj.com/moneybeat/2014/03/21/goldmans-un-goldman-like-fix-for-the-markets-glitch-problems/?KEYWORDS=SCOTT+PATTERSON">WSJ about IEX:</a>
"We view IEX's core mission as simplifying an overly complex market structure trough a transparent rule set, minimal number of order types, and most significantly, a speed buffer that intentionally slows down trading in their market, relative to other venues," Goldman said in its memo, adding that the firm has "consistently been the most active broker in IEX."
Simplifying such a complicated topic like HFT like requires a careful treatment Lewis has demonstrated throughout his career, and then some.
In 'Flash Boys', Lewis tells his readers right off the bat the stock exchanges they picture in their heads - the people yelling, the ticker tape - is dead. "The U.S. stock market now trades inside black boxes, in heavily guarded in New Jersey and Chicago," he writes in the prologue. "What goes on inside those black boxes is hard to say."
In an excerpt seen by Business Insider, Lewis describes the world that IEX is trying to correct. It's a world built by brilliant Russian programmers "oblivious" of the harm they're doing to regular stock holders - who see their code creations as pieces of themselves.
He specifically recounts the story of Sergey Aleynikov, a Goldman Sachs programmer accused of stealing the companies secrets. Lewis wrote about Aleynikov in <a href="http://www.vanityfair.com/business/2013/09/michael-lewis-goldman-sachs-programmer">Vanity Fair</a>, but in the book weaves his story into the context of the creation of IEX.
IEX was born at the Royal Bank of Canada in large part thanks to <span style="color: #000000; font-family: georgia, 'times new roman', times, serif; font-size: 15px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 22.0049991607666px; orphans: auto; text-align: left; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; background-color: #ffffff; display: inline !important; float: none;">Brad Katsuyama, the man who ran the bank's U.S. trading desk. Katsuyama has been <a href="http://www.nytimes.com/2013/10/13/magazine/high-frequency-traders.html?_r=0">outspoken about the problems with HFT before</a>, and it was he who lead the defection from the firm.
The goal, Lewis writes, was to "restore fairness in the U.S. stock market." Katsuyama had watched his clients get nickeled and dimes while trading for them.
"I started to realize that, day in and day out, I was getting screwed," Katsuyama told <a href="http://www.nytimes.com/2013/10/13/magazine/high-frequency-traders.html?pagewanted=1&amp;_r=0">the New York Times</a> last year.
With this book, it's likely that Katsuyama will get to dole out some payback.

The Hero Of Michael Lewis' New Book Is A Mysterious Stock Exchange That Goldman Sachs Loves

<div class="image-container display-table float_right"><div><div class="image">Courtesy of <keyword id="5962" type="ENTERTAINMENT" weightage="60" keywordseo="Vanity-Fair">Vanity Fair</keyword></div></div></div>Now we know what that tantalizing <keyword id="125707" type="PERSON" weightage="60" keywordseo="Michael-Lewis">Michael Lewis</keyword> <a href="http://www.businessinsider.com/michael-lewis-goldman-vanity-fair-story-2013-7">"One Man's Goldman Sachs Nightmare" cover story</a> in the upcoming issue of Vanity Fair is about... 
According to a Goldman source familiar with the situation, Lewis's story is about former <keyword id="6361649" type="CITY" weightage="60" keywordseo="Goldman-Sachs">Goldman Sachs</keyword> programmer Sergei Alyenikov, who was tried, convicted, and then later acquitted of stealing trade secrets from Goldman.
Says our Goldman source:
"This is a sexed-up headline for a very old story, one that has already received extensive ink from the financial and tabloid press. It's about a former GS techie, Sergei Alyenikov, who was prosecuted by the US Department of Justice for stealing proprietary technology from his employer and convicted by a jury in US federal court. When an appeals court reversed that conviction on a technicality, the US congress closed the loophole on a bipartisan vote, and President Obama then signed it into law."
"'Vanity Fair, which typically gives writers months to work on its longer articles, sent Goldman Sachs a series of detailed and one-sided questions about the Alyenikov case on a Saturday afternoon in July and asked for responses by Tuesday morning."
This is the response that Goldman sent Vanity Fair: 
"Goldman Sachs has spent millions of dollars and tens of thousands of hours developing the proprietary source code and technology used in our market making business. The firm has put in place extensive safeguards to protect this valuable technology. In addition to the contractual limits on disseminating confidential information, the firm restricts access to proprietary technology to those employees whose duties designing and maintaining the technology require such access. The firm has also implemented a broad array of technical safeguards to identify or block attempts ot move such code outside its firewall. 
"In this case, the United States Court of Appeals for the Second Circuit determined that Sergei Alyenikov, minutes before his going-away party, 'encrypted and uploaded to a server in Germany more than 500,000 lines of source code for Goldman's HFT system.' While some of those files included open source software, the Court determined that 'a substantially greater number of the uploaded files contained proprietary code.' The Court went on to note that the code 'could be integrated into a competitor's system' and that Mr. Alyenikov then 'deleted the encryption program as well as the history of his computer commands.' After leaving Goldman, he downloaded the code to his home computer and brought it to his new employer, who had offered him a job paying more than 2.5 times his salary at Goldman. Those facts are not in dispute." 
The next issue of the magazine hits newsstands on Thursday. It's Vanity Fair and Michael Lewis, so even if it's an old story, it will probably be good...

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