Exclusive Online Only ContentSettlement Likely in Goldman Sachs Code Theft Case
August 12, 2009
A settlement is the most likely outcome of the Goldman Sachs code theft case, according to securities law experts.
That could be the ripple effect of a ruling by a U.S. District Court judge on Monday, who ruled that Goldman Sachs must provide former vice president Sergey Aleynikov with access to personnel records from his time at the company.
A deal is the most efficient and effective result for both the firm and its former employee, said Harvey Pitt, former chairman of the U.S. Securities and Exchange Commission, now chief executive officer of Washington, D.C.-based consulting firm Kalorama Partners LLC.
Aleynikov was arrested July 3 for allegedly copying 32 megabytes of proprietary Goldman Sachs software, saving it on a server in Germany and transferring the code to a home computer. He had started a new job at a technology startup the previous day.
Settlement seems to be Aleynikov’s objective. Aleynikov attorney Sabrina Shroff in court Monday said she wants to use the file to negotiate a possible deal. Goldman Sachs declined to comment.
A deal is the most likely outcome, since it doesn't look like any actual damage was done to Goldman Sachs, according to a second legal expert, and the Monday ruling is a blow to Goldman Sachs.
“Any comment in those files can be pursued by the gentleman's attorney about what was intended, what it means,” said Allan Grody, president of the New York-based risk management consultancy Financial InterGroup and a former professor of risk management at NYU’s Stern School of Business. “Worlds not though to be damaging or of concern when one fills out a profile of an individual, in light of a prosecution for criminal behavior can take on new meaning.”
In addition, Goldman may have to provide details about the nature of the code Aleynikov is alleged to have stolen. “I don't think they want to go to court and expose all this kind of information,” he said.
According to Grody, trading algorithms have a short shelf life, and are usually most valuable when used in conjunction with historical trading databases.
“And I don't think much can be stolen in 32 megabytes,” he said.
The final settlement is likely to include a fine, and a prohibition against working in this area in the future, Grody said.
“If the young gentleman is smart, he'll work to avoid being banned from the securities industry,” he said. “But he will certainly be kept away from doing anything having to do with high speed electronic trading. I think that will be a good outcome.”
Pitt added that a deal could help shed light on the vulnerabilities of financial institutions' codes and to help build better protections against future incursions.
“From Aleynikov's point of view, a deal may enable him to reduce the amount of time he will serve, and may give him at least some public credit for working to help prevent future malevolent efforts of a similar nature,” he said.
Aleynikov worked at Goldman Sachs from May 2007 to June 5. On July 2, he began working at Teza Technologies LLC, a startup firm not yet engaged in investment or trading activity. He was suspended without pay on July 5, after Teza learned of his arrest. According to the company, Aleynikov passed a background check and agreed that he was not violating any intellectual property rights.
