After 6 Years of Prosecutorial Excess on Behalf of the Vampire Squid, We Finally See Aleynikov's Total Exoneration

After multiple prosecutions, by multiple prosecutors, at the behest of Goldman Sachs, Sergey Aleynikov is a free man, for a while, at least:

Kevin H. Marino pumped his fist in the air in celebration. Then Mr. Marino, a New Jersey lawyer with a linebacker’s build, turned to his longtime client, Sergey Aleynikov, and gave Mr. Aleynikov, a former Goldman Sachs programmer, a bear hug and a hearty pat on the back.

Just moments earlier, a clerk in State Supreme Court in Manhattan had given Mr. Marino a copy of the judicial ruling that overturned Mr. Aleynikov’s conviction on a charge that he stole confidential computer code for Goldman Sachs’s high-speed trading business.

The clerk, saving Mr. Marino from having to thumb through the 72 pages to learn what Justice Daniel P. Conviser had ruled, simply whispered congratulations to the lawyer. For Mr. Aleynikov, 45, and Mr. Marino, it appeared to be the end of a six-year legal odyssey through the federal and state court systems in New York.

But the celebration may not last long. State prosecutors in Manhattan have already indicated they may appeal the decision issued Monday, which threw out a jury’s verdict.

Once before, Mr. Aleynikov had believed he was in the clear, when a federal appeals court overturned his conviction under a federal corporate espionage law in 2012. The appellate court ruled that federal prosecutors in Manhattan had misapplied the law, and it ordered Mr. Aleynikov to be immediately released from a federal prison.

Less than a year later, however, Mr. Aleynikov was back in court defending himself, after state prosecutors in Manhattan charged him with violating state computer-theft-related laws.

Now Justice Conviser — much like the federal appellate court before him — ruled that the decades-old state law that Mr. Aleynikov was convicted of violating did not apply to the accusations against him.

………

But Mr. Marino was at no loss for words in criticizing Goldman.

“Goldman Sachs is powerful enough to provoke two failed criminal prosecutions to settle a private score,” Mr. Marino said. “Goldman Sachs has also spent millions in shareholder dollars to evade their obligation to pay Mr. Aleynikov’s legal fees for winning two criminal cases.”

I rather expect Vance to appeal, since the Manhattan district attorney is clearly bought and paid for by Wall Street.

At the time, I was hoping that this would turn over the rock that is the illegal front running high frequency trading conducting by the biggest brokerage firms, but the prosecutors were determined to keep that covered up, and to continue to avoid prosecutions that might bot reveal Goldman's skullduggery, and follow up with prosecutions grounded in bizarre legal theories.

Background here.

Sergey Aleynikov Freed

You may recall that he was convicted under the Economic Espionage Act for downloading some high frequency trading software from Goldman Sachs, where he worked.

Apparently, the judge in the trial completely bought into the prosecutions expansion of the law, intended to prosecute people for selling military secrets to the Chinese, to this case, and the appellate court came down hard on the judge. They did not just remand this back to the lower court, they ordered the lower court to enter a judgement of acquittal.

Felix Salmon explains why whole case was such an outrage:

The secrets at defense contractors, of course, are secret for reasons of national security. The secrets at investment banks and hedge funds, by contrast, are secret purely for reasons of profit: they reckon that if they have some clever algorithm which nobody else has, then that makes it easier for them to profit from it. Which is why it was always a stretch for the government to use the EEA to prosecute Aleynikov — indeed, it is why it was always a stretch for Aleynikov to be criminally prosecuted at all. Goldman could have brought a civil case against him, but instead they got their wholly-owned subsidiary, the U.S. government, to come down on him so hard that he ended up with an eight-year sentence. Violent felons frequently get less.

The forthcoming decision from the Second Circuit is likely to be a doozy; I’m told that the judges shredded the prosecutors during the oral hearing. And certainly their decision to enter a judgment of acquittal, rather than any kind of retrial, is a strong indication that they handed down this order with extreme prejudice against prosecutorial overreach.

(emphasis mine)

This has been a lose-lose for the Vampire Squid. They looked like bullies, they brought a lot of attention to the bit of front-running that is high frequency trading, and they have now lost the case.

That being said, I don't expect Goldman, or the prosecutors, to give up just yet.

Background here.

Sergey Aleynikov Guilty

He is the computer programmer who was charged with stealing Goldman Sach's high frequency trading software.

Here are the New York Times and Wall Street Journal stories.

The Times version has a video (unfortunately not embeddable) of Fordham University law professor Joel Reidenbert, who basically says that what would ordinarily be a civil matter, a potential breach of confidentiality agreements, was made into a criminal case to make an example of the "US Attorney doing the heavy lifting for Goldman."

He doesn't come out and say it, but I infer from his that this was a hit by the US Department of Justice, with the active and aggressive collusion of federal judge Denise Cote, to do the Vampire Squid's^* bidding, as the article notes, "During the two-week trial, Judge Denise L. Cote closed the courtroom to the public several times to protect Goldman’s proprietary source code," and "Before dismissing the panel, Judge Cote warned them that if they were going to speak about the case, they must not discuss anything related to Goldman’s code."

It stinks to high heaven.

^*Alas, I cannot claim credit for the bon mot describing Goldman Sachs as a, "great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money." This was coined by the great Matt Taibbi, in his article on the massive criminal conspiracy investment firm, The Great American Bubble Machine.

Well, This is a Surprise

In the latest twist to the legal travails of Sergey Aleynikov, who is accused of theft of Goldman-Sach's illegal market front-running high frequency trading software is now arguing that the code in question was open source, so there was no theft:

Sergey Aleynikov, who is accused of stealing Goldman Sachs’ source code used in high-frequency trading, argued that he was standing up to the investment bank’s proprietary claims on open-source code, not trying to steal private codes to use at a competing trading firm.

Mr Aleynikov, a former computer programmer at the bank, is accused of downloading proprietary code related to high-speed trading systems in June 2009 for use at a new job at a competing firm.

While this statement may actually be true, it does strike me as a rather low percentage defense.

Unfortunately, it also implies that we will not be getting any details on how the Vampire Squid and its Wall Street co-conspirators might actually be gaming the system with their co-located high speed trading systems during the trial.

Prosecution Doing Back-Flips For Goldman Sachs in High Frequency Trading Trial

If there was any doubt that the federal prosecutors in New York prosecuting Sergey Aleynikov for theft of trade secrets weren't in Goldman Sach's Pocket, those doubts have been allayed:

Goldman Sachs Group Inc. has always closely guarded the secrets of its lucrative high-speed trading system. Now the securities firm is getting a help from an unusual source: federal prosecutors.

Federal prosecutors in Manhattan this week asked a federal district judge to seal the courtroom at the forthcoming trial of a former Goldman computer programmer accused of stealing the firm's computer code. The move was a formal request to empty the courtroom of the general public when details of Goldman's trade secrets are being discussed. The trial is set to start to late November.

Prosecutors also asked that any documents related to Goldman's trading strategies remain under seal.

Such requests are common when proprietary corporate information could be exposed in a trial, lawyers say. This case is unusual in that it involves secrets about a potentially lucrative trading system, rather than, say, ingredients in a soda formula.

What is also unusual is that this code is almost certainly obsolete, and almost certainly has no value to a competitor.

The software almost certainly has to be updated regularly, probably monthly, possibly weekly, which means that the algorithms and code are almost certainly obsolete, but still they want the court sealed.

This is not about protecting trade secrets, this is about concerns by the vampire squid^* that if the details on how they conducted business came out, they would have people calling for their scalps for front-running the markets.

Basically, Goldman, and the prosecutors, are trying to conceal activity by Goldman that is either illegal, or would lead to changes in regulations that would make it so if the details came out.

My earlier posts on this are here.

^*Alas, I cannot claim credit for the bon mot describing Goldman Sachs as a, "great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money." This was coined by the great Matt Taibbi, in his article on the massive criminal conspiracy investment firm, The Great American Bubble Machine.

Sergey Aleynikov Gets One Count Dismissed

He is accused of stealing Goldman Sachs' proprietary high frequency trading software, but one of the three counts against him, for unauthorized computer access, has been dismissed.

I've always maintained that HFT is actually illegal front-running, or at least it was illegal before Treasury Secretary Robert "Why am I not in jail?" Rubin got his hands on the regulatory regime, and as such, I have always wondered if there was a cover-up of some kind, seeing as how the prosecutors have admitted that this code could be used to manipulate the markets.

A twist in the case that I was unaware of was that Sergey is not the only one the Feds are going after on this, as, "Two months after Aleynikov's indictment, prosecutors charged former Societe Generale trader Samarth Agrawal with stealing computer code used in high-frequency proprietary trading in the French bank's New York office."

I am beginning to think that there is an official policy of allowing "systemically important" banks to skim profits from the markets in order to bolster balance sheets that are far shakier than has been revealed, but they want to keep this technology out of the hands of the small fry, because it would make the flash crash look like a weenie roast if too many people got their hands on this technology.

Background here

This is a Case to Watch

Sergey Aleynikov, a senior programmer for Goldman Sach's high frequency trading software, has been indicted for software theft.

It's alleged that he took the software, and sent copies of it to a server in Germany.

This case is odd.

First, the entire high frequency trading thing smells of corruption: The idea is that by having servers colocated in the market, you pick up a few milliseconds speed, and so can execute trades between when someone else requests a buy, and when their transaction is actually executed.

To my, admittedly untrained, gut this sounds identical to front-running, which is illegal.

Additionally, the twists and turns of the trial, where Aleynikov's lawyers made some fairly routing requests for things like his personnel file to show that he was not a disgruntled employee, had the squid's^* lawyers seriously freaking out, and suggesting that charges should be dropped.

I think that there are some very real bits of corruption that might be uncovered in the trial, though the prosecution, defense, and judge might very well find a way to suppress that, because, after all, it's Goldman Sachs, and rule number 1 of Goldman Sachs is that Goldman Sachs has friends in high places, so it always gets what it wants.

My prior posts are here.

^*Alas, I cannot claim credit for the bon mot describing Goldman Sachs as a, "great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money." This was coined by the great Matt Taibbi, in his article on the massive criminal conspiracy investment firm, The Great American Bubble Machine.

Sergey Aleynikov Pleads Not Guilty on Charges of High Frequency Trading Software Theft

So, he is going to trial.

I'm surprised.

In my earlier examinations of this matter, it appeared that Goldman Sachs was considering letting it slide, because Mr. Aleynikov was requesting something that they did not want to provide.

The basics are fairly simple: High Frequency Trading (HFT) is basically a way to front run the entire market, and this guy was their head software guy in the process, so the trial should be interesting.

Aleynikov Wants Deferred Prosecution

Sergey Aleynikov is the programmer alleged to have taken Goldman Sachs' high speed trading computer code, and his lawyers are asking prosecutors for a delayed prosecution, which basically means that if he keeps his nose clean, he gets a dismissal in a few years.

It sounds to me like he is going to get it, based on the refusal of Goldman Sachs to turn over his personnel file.

I'm wondering if this was a case where GS was worried about his competing with them in this market in his new job, and decided that filing a dodgy complaint with the FBI would shut him down, and then realized that if they turned over personnel records, that they would out themselves for some sort of crime.

Background here (or it will be when "the Google" fixes the blogger search function).

Something Smells Very Fishy Here

Remember that guy who allegedly stole Goldman Sach's proprietary high speed trading software? You know, the stuff that ran on their co-located servers in the exchanges, and so as to engage in front-running the entire market?

Well, it looks like there is a no jail time deal for Sergey Aleynikov in the offing about this.

Goldman Sachs has apparently folded like a bunch of overcooked broccoli, after the defense got a ruling saying that said that they were to be given access to all relevant personnel records.

So, Goldman Sachs, that great vampire squid wrapped around the face of humanity,^* the folks who think, probably correctly, that they own the United States of America, acted like a prison bitch when confronted with the possibility of his reviewing his own personnel file???

Something is very wrong here.

What on earth are they hiding?

FWIW, any tips received will be kept in strictest confidence.

^*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.

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.