Project World Awareness
U.S. Seeks to Shield Goldman Secrets…
By SCOTT PATTERSON
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.
Sergey Aleynikov, 40 years old, was arrested by Federal Bureau of Investigation agents in Newark Liberty International Airport on July 3, 2009, and charged with the theft of computer code behind Goldman’s high-frequency trading platform. The programmer was indicted in February and has pleaded not guilty.
Motions filed this week by the government and the defense offer a window into arguments that will decide Mr. Aleynikov’s fate. Prosecutors are expected to argue that his actions could have harmed Goldman Sachs. A spokesman for the bank declined to comment.
Lawyers for Mr. Aleynikov, whom the indictment alleges uploaded Goldman code to a server in Germany and then downloaded it to his home computers, are expected to contend that the code he took only represented a fraction of the broader strategy and couldn’t be used to hurt Goldman’s business, court documents suggest.
Earlier this year, Mr. Aleynikov’s defense team sought details from the government and Goldman Sachs regarding the bank’s high-frequency computer systems. The court denied those requests.
Lead defense attorney Kevin Marino, of the Chatham, N.J., law firm Marino, Tortorella & Boyle, argued in his motion this week that the defense requires access to information about Goldman’s trading system to prove Mr. Aleynikov “could not have intended to injure Goldman” by taking the firm’s trading code.
The bar for clearing a courtroom can be high, said Sandra McCallion, a lawyer specializing in trade-secret cases for the New York law firm Cohen & Gresser LLP. The government has to show that “this is something that is so secret that it will cause harm to [Goldman] if it were made public,” she said.
The arrest of the Goldman programmer helped put high-frequency trading into the spotlight last year. The strategy, in which powerful computers buy and sell securities at ultrafast speeds, has proved lucrative for many traders.
The indictment said Goldman’s high-frequency trading operation generated “many millions of dollars in profits per year.”
The strategy also has come under heightened scrutiny amid concerns that some high-frequency traders were gaining unfair advantages in the market. The Securities and Exchange Commission has launched an in-depth study of issues surrounding high-speed trading and is considering several proposals to monitor it.
This year, regulators have focused on the role high-frequency traders played in the May 6 “flash crash,” when some of the fast-moving firms stepped away from the market during the height of the turmoil.
Court documents filed by the government in July 2009, soon after Mr. Aleynikov’s arrest, state that Goldman’s strategies involve “sophisticated, high-speed and high-volume tr
Prosecutors allege that Mr. Aleynikov transferred a substantial portion of that code to a computer server in Germany. He then downloaded the code to his personal laptop, which he allegedly brought to Chicago, where he had a meeting a firm that had hired him, start-up trading shop Teza Technologies LLC.Teza became embroiled in its own legal battle following Mr. Aleynikov’s arrest. Founder Mikhail “Misha” Malyshev and Teza employees were sued by their former employer, Chicago hedge fund Citadel LLC, for violating agreements not to work for a competitive firm. In mid-October 2009, a Chicago court granted sanctions against The Teza case showed how details surrounding a trading strategy can emerge during the course of a trial, including disclosures that the Citadel high-frequency unit pulled in about $1 billion in 2008.
Write to Scott Patterson at scott.patterson@wsj.com
DocumentFiling: Goverment motion in U.S. v. Sergey Aleynikov Here
Related articles
- US asks to seal courtroom to guard Goldman secrets (reuters.com)
- Prosecutors Request Closed Courtroom For Goldman HFT Programmer’s Trial (yro.slashdot.org)
- Read What the Government Wants to Keep Secret about Goldman Sachs (blogs.wsj.com)
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http://projectworldawareness.com/2010/10/u-s-seeks-to-shield-goldman-secrets/
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