Goldman Sachs programmer goes to jail after stealing HFT source code

1a2b3cppp · Aug 7, 2013

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Michael Lewis: Did Goldman Sachs Overstep in Criminally Charging Its Ex-Programmer?

A month after ace programmer Sergey Aleynikov left Goldman Sachs, he was arrested. Exactly what heâd done neither the F.B.I., which interrogated him, nor the jury, which convicted him a year later, seemed to understand. But Goldman had accused him of stealing computer code, and the 41-year-old father of three was sentenced to eight years in federal prison. Investigating Aleynikovâs case, Michael Lewis holds a second trial.

To Sergey Aleynikovâs new way of thinking, every American could benefit from some time in jail, but in the event that you are yourself actually arrested and sent away, âthere are certain practical aspects to keep in mind.â First, dress warmly. Detention centers tend to be freezing cold, even in summer, and so if you happen to be wearing shorts or short sleeves youâre in for a spectacularly unhappy night. Second, carry no cash. âIf you have money, they charge you a convenience fee,â he explains. âIf you donât have it, they donât charge you. The less money you have on you, the better.â Third, memorize a couple of emergency contact phone numbers. On the night of his first arrest he discovered he didnât actually know his wifeâs cell-phone number. Heâd always phoned her by name from his cell phoneâs address book, but his phone was one of the first things theyâd taken from him.

The fourth, and final, rule was by far the most important: Donât say a word to government officials. âThe reason you donât,â he says, âis that, if you do, they can place an agent on a witness stand and he can say anything.â

On the night of July 3, 2009, as he came off a flight from Chicago to Newark, New Jersey, he was totally unprepared, because heâd never imagined himself as the sort of person who might commit a crime. He worked too much and took only the vaguest interest in his fellow human beings, but, up to the moment of his arrest, Aleynikov had no sense that there was anything wrong with him or his situation. On the surface, his life had never been better: his third child had just been born, he had a new job at a hedge fund that paid him a million dollars a year, and heâd just moved into a big new house of his own design that he thought of as the perfect home. Heâd come to America 20 years ago with little English and less money. Now he was living the dream.

For much of the flight from Chicago heâd slept. Leaving the plane he had noticed three men in dark suits, waiting in the alcove of the Jetway reserved for baby strollers and wheelchairs. They confirmed his identity, explained they were from the F.B.I., handcuffed him, and walled him off from the other passengers. This last act was no great feat. Serge was six feet tall but weighed roughly 130 pounds: to hide him you needed only to turn him sideways. He resisted none of these actions, but he was genuinely bewildered. The men in black refused to tell him his crime. He tried to figure it out. His first guess was that theyâd gotten him mixed up with some other Sergey Aleynikov. Then it occurred to him that his new employer, the legendary high-frequency trader Misha Malyshev, might have done something shady. Wrong on both counts. It wasnât until the plane had emptied and theyâd escorted him into Newark Airport that they told him his crime: stealing computer code owned by Goldman Sachs.

The agent in charge of the case, Michael McSwain, was fairly new to law enforcement. Oddly enough, heâd been a currency trader on the Chicago Mercantile Exchange for 12 years. Heâd ended his career on Wall Street the same year, 2007, that Serge was beginning his. McSwain marched Serge into a black town car and drove him to the F.B.I. building in Lower Manhattan. After making a show of stashing his gun outside, Serge says, McSwain led him into a tiny interrogation room, handcuffed him to a rod on the wall, and, finally, read him his Miranda rights.

Then he explained what he knew, or thought he knew: in April 2009, Serge had accepted a job at a new high-frequency-trading shop called Teza Technologies, but had remained at Goldman for the next six weeks, until June 5, during which time he sent himself, through a so-called âsubversion repository,â 32 megabytes of source code from Goldmanâs high-frequency stock-trading system. The Web site Serge had used (which has the word âsubversionâ in its name) as well as the location of its server (Germany) McSwain clearly found highly suspicious. He also seemed to think it significant that Serge had used a site not blocked by Goldman Sachs, even after Serge tried to explain to him that Goldman did not block any sites used by its programmers, but merely blocked its employees from porn and social-media sites and suchlike. Finally, the F.B.I. agent wanted him to admit that he had erased his âbash historyââthat is, the commands he had typed into his own Goldman computer keyboard. Serge tried to explain why he had done this, but McSwain had no interest in his story. âThe way he did it seemed nefarious,â the F.B.I. agent would later testify.

All of which was true, as far as it went, but, to Serge, that didnât seem very far. âI thought it was like, crazy, really,â he says. âHe was stringing these computer terms together in ways that made no sense. He didnât seem to know anything about high-frequency trading or source code.â For instance, Serge had no idea where the âsubversion repositoryâ was physically located. It was just a place on the Internet used by developers to store the code they were working on. âThe whole point of the Internet is to abstract the physical location of the server from its logical address.â To Serge, McSwain sounded like a man repeating phrases that heâd heard from others but that, to him, actually meant nothing. âThere is a game in Russia called âPhone Bookâ â (like the American game Telephone), he says. âIt felt like he was playing that.â

What Serge did not yet know was that Goldman had discovered his downloads just a few days earlier, months after heâd made the first of them. Theyâd called the F.B.I. in haste, just two days before, and then put their agent through what amounted to a crash course on high-frequency trading and computer programming. McSwain later conceded that he didnât seek out independent expert advice to study the code Serge Aleynikov had taken. (âI relied on statements from Goldman employees.â) He himself had no idea of the value of the stolen code (âRepresentatives of Goldman told me it was worth a lot of moneyâ) or if any of it was actually all that special (he based his belief that the code contained trade secrets on ârepresentations made by members of Goldman Sachsâ). The agent noted that the Goldman files were on both the personal computer and the thumb drive heâd taken from Serge at Newark Airport. (But virtually none of those files had been opened. If they were so important, why hadnât Serge looked at them in the month since heâd left Goldman?) The F.B.I.âs investigation before the arrest consisted of trusting Goldmanâs explanation of some extremely complicated stuff, and 48 hours after Goldman called the F.B.I., Serge was arrested.

On the night of the arrestâwithout an arrest warrantâSerge waived his right to call a lawyer. He phoned his wife and told her what had happened and that a bunch of F.B.I. agents were on the way to their home to seize their computers, and to please let them inâthough they had no search warrant, either. Then he sat down and politely tried to clear up the F.B.I. agentâs confusion. âHow could [the agent] figure out if this was a theft if he didnât understand what was taken?â Serge recalls having asked himself. What heâd done, in his view, was trivial; what he stood accused ofâviolating both the Economic Espionage Act of 1996 and the National Stolen Property Actâdid not sound trivial at all. Still, he thought, if the agent understood how computers and the high-frequency-trading business actually worked, the matter would be quickly cleared up. âThe reason I was explaining it to him was to show that there was nothing there,â Serge says. âHe was completely not interested in the content of what I am saying. He just kept saying to me, âIf you tell me everything, Iâll talk to the judge, and heâll go easy on you.â It appeared they had a very strong bias from the very beginning. They had goals they wanted to fulfill. The goal was to obtain an immediate confession.â (The F.B.I. declined to comment on Aleynikovâs case.)
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Source:
http://www.vanityfair.com/business/2013/09/michael-lewis-goldman-sachs-programmer

satchel · Aug 7, 2013

already an open thread in Wall St. News forum

http://www.elitetrader.com/vb/showthread.php?s=&threadid=277189

but at this rate it's hitching a ride to chit chat real soon

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Goldman Sachs programmer goes to jail after stealing HFT source code

1a2b3cppp

satchel