Is Goldman Sachs Running a Scam Right out of The Sting?

Yes, we now have a case of what appears to be industrial espionage, or perhaps geeky security breaches, this is once more pulling back a part of the masque from that great vampire squid wrapped around the face of humanity^*, Goldman Sachs.

Specifically, a former programmer at Goldman Sachs, one Sergey Aleynikov, is alleged to have stolen the proprietary program trading software that they use and stored it on a server somewhere in Germany. (Also here and here)

What is interesting is what this software actually does:

The platform is one of the things that apparently gives Goldman a leg-up over the competition when it comes to rapid-fire trading of stocks and commodities. Federal authorities say the platform quickly processes rapid developments in the markets and uses top secret mathematical formulas to allow the firm to make highly-profitable automated trades.

Or as is noted in the criminal complaint:

The Financial Institution has devoted substantial resources to developing and maintaining a computer platform that allows the Financial Institution to engage in sophisticated high-speed, and high-volume trades on various stock and commodities markets. Among other things, the platform is capable of quickly obtaining and processing information regarding rapid developments in these markets.

So basically, we have high speed software to execute computer driven trades in response to market fluctuations, to the tune of about 60% of all of these trades, about $100 million a day,

We also have this tidbit from the prosecutor, "The bank has raised the possibility that there is a danger that somebody who knew how to use this program could use it to manipulate markets in unfair ways."

The reality here is that it is being used to manipulate markets in unfair ways, by Goldman Sachs.

Vet74 at Daily Kos explains in a fairly technical way, but basically, this is the scam within a scam from the Paul Newman/Robert Redford movie The Sting, where the man they are cheating, murderous gangster Doyle Lonnegan, believes that they are delaying the ticker tape of race results so as to place bets on horses that have already won.

When they note that the software, "quickly processes rapid developments in the markets," what they really mean is that this software can pick up on large orders in process, and get their orders in ahead of those orders already in process, and generate profits.

If this were a human transaction, with the agent doing it to a client, it would be called front-running, and it would be a felony.

I'm pretty sure that Goldman does not want everything to come out in court, because, even if it's legal, the revelations would likely lead to calls for additional regulatory reform.

They just want this gut to cop a plea, extract some sort of non-disclosure agreement, and then make him disappear.

You can tell this, because they are playing some serious hardball here.

They discovered the loss of the code some time in mid June, but held off on notifying authorities until July 1, pretty much guaranteeing that the arrest, and setting of bail would take place over the holiday, and he would have to spend the weekend in jail.

He is out on bail now, but I expect a plea, or a convenient suicide, because the exposure in open court of what amounts to a massive, pervasive, and thoroughly corrupt insider trading scheme is something that the squids^* will find unacceptable.

Then again, I am a bit tinfoil hat on such things.

^*Alas, I cannot claim credit for this bon mot, it was coined by the great Matt Taibbi, in his article on the massive criminal conspiracy investment firm, The Great American Bubble Machine.