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Twisted Tale of Highly Paid HFT Coder Takes Another Turn

When we last left our hero, he was facing prison -- again.

Yes, highly paid rock star coder Sergey Aleynikov is back in the news. It's been a long, strange soap-opera-like trip for the Russian immigrant, accused of stealing proprietary code of the kind that makes billions of dollars for Wall Street firms engaged in high-frequency trading (HFT). With the right algorithms, HFT houses can beat competitors by microseconds and take advantage of stock market timings to make huge sums of money with no human involvement.

Aleynikov, secure in his position as a $400,000 Goldman Sachs Group Inc. programmer, went for the huge sums of money himself when rival HFT firm Teza Technologies LLC offered to basically triple his salary to $1.2 million in 2009. Upon his exit, however, Goldman Sachs accused him of stealing source code concerning the super-secret algorithms -- probably some of the most guarded information in the financial system. In his defense, Aleynikov admitted downloading some code from company servers to his own machine, but he claimed the code was non-proprietary, open source code.

He was found guilty and sentenced to eight years in prison. He appealed the District Court's decision and won, being released from custody. Then Congress changed the applicable law with the "Theft of Trade Secrets Clarification Act of 2012." That led to Aleynikov being arrested again in 2012 on New York State charges. A jury trial reached a split verdict on two charges of "Unlawful use of secret scientific material," and all charges against Aleynikov were dropped yesterday in the state case that was weakened by a judge's rulings in favor of Aleynikov last year.

I first heard of Aleynikov when I went looking to find out who the highest-paid programmers were. The Teza salary of $1.2 million was about the highest salary I could find for a programmer -- though the actual highest-paid programmers are probably employed by people you've never heard of doing things you've never heard of.

The case gave me an insight into the pressure-cooker world of coders at Wall Street financial firms and gave rise to further explorations of the secretive technology behind the algorithms.

It also brought up some troubling questions beyond coding, such as the government's zealous prosecution of Aleynikov in criminal courts when many thought the dispute was a civil issue between employer and employee. The government also sought an eight-year sentence when the official Federal Probation Service recommended only a two-year sentence ("Goldman Sachs Code Thief Gets More Time In Prison Than Sex Offender," the Huffington Post trumpeted). And then, after Aleynikov's federal conviction was overturned (after he had been incarcerated for almost a year), the government changed the applicable laws. The feds couldn't go after him again, though, because of double-jeopardy protections, so the state took up the judicial cause.

His lawyer hinted at a secret force driving the relentless prosecution: the spurned financial powerhouse, Goldman Sachs ("Whatever You Do, Just Don't Steal From Goldman Sachs," wrote The Wall Street Journal).

"Here he is in the well of another courtroom, facing the exact same charge because Goldman Sachs has enormous power and they are bringing it to bear in this case," attorney Kevin Marino said in 2012 when Aleynikov was re-arrested and re-charged. "If you mess with Goldman Sachs, you better get ready for the fight of your life."

As reported yesterday by Bloomberg, however, Aleynikov is fighting back.

"For his part, Aleynikov has taken the fight to Goldman Sachs and the Federal Bureau of Investigation agents who arrested him," Bloomberg reported. "In federal court in New Jersey, he sued the agents for malicious prosecution and is seeking to have the firm pay for the cost of his defense." Marino pegged that at about $7 million.

"Michael DuVally, a spokesman for New York-based Goldman Sachs, declined to comment on the decision," Bloomberg reported.

The still-zealous (if different from the original) prosecutors didn't decline to comment, however.

"We think this defendant committed a crime," Joan Vollero, a district attorney spokeswoman said in an e-mail to Bloomberg. "If what Sergey Aleynikov did isn't a crime, then every company that values its intellectual property should be concerned."

So, for now at least, the soap opera continues in civil proceedings. With big players and big money involved, the case and its bizarre twists and turns (only partially outlined in this space) are likely to continue for some time, with ramifications that might shake up the whole employer/programmer legal relationship and the entire intellectual property legal landscape.

Stay tuned.

Posted by David Ramel on July 7, 2015