Goldman Sachs Quant Code Case: How Big a Deal Is It?

[seemslikeadream]

http://www.bloomberg.com/apps/news?pid= ... vhNzr3wH5w

Goldman Trading-Code Investment Put at Risk by Theft (Update2)

By David Glovin and Christine Harper


July 6 (Bloomberg) -- Goldman Sachs Group Inc. may lose its investment in a proprietary trading code and millions of dollars from increased competition if software allegedly stolen by a former employee gets into the wrong hands, a prosecutor said.

Sergey Aleynikov, an ex-Goldman Sachs computer programmer, was arrested July 3 after arriving at Liberty International Airport in Newark, New Jersey, U.S. officials said. Aleynikov, 39, who has dual American and Russian citizenship, is charged in a criminal complaint with stealing the trading software.

At a court appearance July 4 in Manhattan, Assistant U.S. Attorney Joseph Facciponti told a federal judge that Aleynikov’s alleged theft poses a risk to U.S. markets. Aleynikov transferred the code, which is worth millions of dollars, to a computer server in Germany, and others may have had access to it, Facciponti said, adding that New York-based Goldman Sachs may be harmed if the software is disseminated.

“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,” Facciponti said, according to a recording of the hearing made public today. “The copy in Germany is still out there, and we at this time do not know who else has access to it.”



http://blogs.wsj.com/marketbeat/2009/07 ... eal-is-it/

Goldman Sachs Quant Code Case: How Big a Deal Is It?

By Matt Phillips


Andrew Harrer/Bloomberg News


Markets bloggers are atwitter this morning with news that the U.S. Justice Department arrested a former Goldman Sachs employee and charged him with stealing computer codes related to the firm’s high-speed trading platform. Dow Jones reports:

Sergey Aleynikov, a naturalized U.S. citizen who emigrated from Russia, allegedly unlawfully copied, duplicated, downloaded and transferred computer codes from a New York-based financial institution and uploaded the codes to a computer server in Germany, according to a complaint filed by federal prosecutors.

The complaint from the government didn’t specifically reference Goldman Sachs. Goldman Sachs was referenced during Saturday’s bail hearing, and a person familiar with the matter confirmed that Aleynikov worked as a computer programmer for the company.

The person familiar with the matter also said, “The theft has had no impact on our clients and no impact on our business.”

Questioned by Federal Bureau of Investigation officials, Aleynikov admitted only to “unwitting conduct,” that whatever he is accused of doing wasn’t done on purpose. Aleynikov’s lawyer, federal defender Sabrina Shroff, said she believes her client is innocent.

It’s still unclear exactly how big a deal this situation is. Reuters’ Matthew Goldstein, who broke the story, tends to think that if the allegations are true, it’s important since the codes in question are the keys “to unlocking Goldman’s automated stocks and commodities trading businesses. Federal authorities allege the computer codes and related-trading files that Aleynikov uploaded to a German-based website help this major ‘financial institution’ generate millions of dollars in profits each year.”

Financial bloggers seem especially intrigued by the fact that Aleynikov’s arrest follows the disappearance of Goldman from the NYSE’s weekly tally of program trading, where Goldman has usually perched at the top. (Goldman tells Goldstein that it did submit its program trading data and it should have been at the top of the report as per usual. And the NYSE seems to concur, saying that the program trading report needs to be revised because of an error on the exchange’s part.






http://nymag.com/daily/intel/2009/07/se ... ave_s.html
Sergey Aleynikov Should Have Stuck With Ballroom Dancing


http://tpmcafe.talkingpointsmemo.com/ta ... ef=reccafe
Goldman Sachs and the Code of Gold



In a nutshell, on Friday, one Sergey Aleynikov was arrested at Newark airport by FBI agents, as he was coming back from a trip to Chicago (maybe visiting his new employer), on what are basically industrial espionage charges. If the allegations are true, it looks like Goldman's hi-fi quant trading desk was thoroughly penetrated by a "spy", and Sergey's description of his job duties mirrors what Mr. Ed Canaday conveniently provided to Zero Hedge as a description of Goldman's SLP program. (Sources connected with the office of the United States Attorney have confirmed to Zero Hedge that Aleynikov was at one time or another a Goldman employee.").



The plot thickens: per FBI agent Michael McSwain's sworn deposition, Sergey quit a firm described as "Financial Institution" in the affidavit, which according to circumstantial evidence and according to Goldstein is none other than Goldman Sachs, on June 5, at that time earning $400,000 annually. As Goldstein reports, he proceeded to move to a Chicago firm engaged in "high volume automated trading" where he would make 3x his $400k salary.



In the 5 days immediately preceeding his departure from "Financial Institution" (potentially GS), Sergey allegedly downloaded 32 megs of ultra top-secret quant trading proprietary code, that, according to Special Agent McSwain's affidavit, he then proceeded to encrypt and upload to a website in Germany, with a UK owner. One can only imagine the value of this "code" not only to Goldman but to the highest bidder. After all, from the affidavit: "certain features of the [code], such as speed and efficiency by which it obtains and processes market data, gives the Financial Institution a competitive advantage among other firms that also engage in high-volume automated trading.The Financial Institution further believes that, if competing firms were to obtain the [code] and use its features, the Financial Institution's ability to profit from the [code]'s speed and efficiency would be significantly diminished." Needless to say, many others are now also likely hot on the trail of the code.



What is probably most notable, in less than a month since Sergey's departure from [Goldman?], the FBI was summoned to task and the alleged saboteur was arrested and promptly gagged: if anyone is amazed by the unprecedented speed of this investigative process, you are not alone. If only the FBI were to tackle cases of national security and loss of life with the same speed and precision as they confront presumed high-frequency program trading industrial espionage cases... especially those that allegedly involve Goldman Sachs.



Now the real question here is, does [GS?] feel lucky? Because the code has supposedly been in the hands of an outsider for over a month, one might suspect that if the code was for sale anyone who wanted to has had ample opportunity to buy it. Would that have anything to do with the even weirder than usual market action over the past 2-3 weeks. After all under such a scenario Goldman Sachs would lose it's advantage and Goldman Sachs is the primary SLP on the world's biggest stock exchange.



So now is the question in the air is, has Goldman Sachs lost it's secret computer program, its code? Is the curtain being pulled back to reveal the inner workings of Goldman Sachs or will this all conveniently disappear ?



http://www.reuters.com/article/domestic ... U020090707

Ex-Goldman programmer out on bail in theft case



Mon Jul 6, 2009 8:48pm EDT



NYSE error, alleged Goldman breach said unrelated 7:19pm EDT

By Martha Graybow

NEW YORK (Reuters) - A former Goldman Sachs Group Inc computer programer accused of stealing secret trading codes from the financial firm has been released from federal custody after posting bail, authorities said on Monday.

Sergey Aleynikov, 39, was arrested by the FBI on Friday and charged with "theft of trade secrets." He met the terms of his $750,000 bail and was released Monday, said FBI spokesman James Margolin.

Aleynikov is accused of misusing computer codes that belong to his former employer, a New York-based financial institution that authorities did not identify in court papers but sources say is Goldman Sachs.

A transcript of Aleynikov's appearance before U.S. Magistrate Kevin Nathaniel Fox in Manhattan on Saturday also shows that Aleynikov worked for Goldman.

His lawyer, Sabrina Shroff, said at that proceeding that Aleynikov told authorities after his arrest that he did not intend to sell the information or use it "contrary to my employment agreement with Goldman Sachs."



http://www.zerohedge.com/article/sergey ... -violation


Sergey Aleynikov Guilty Of Prior IP Violation?



Submitted by Tyler Durden on Mon, 07/06/2009 - 16:20


Sergey Aleynikov
Zero Hedge is still trying to ascertain whether this Sergey Aleynikov is "that" Sergey Aleynikov, but if 1=2, then (to keep it algo) it would seem Goldman's HR department is rather lousy at doing background checks. (Also, was Sergey in pro per? Hopefully he has learned how to retain counsel by now.)




http://www.smartplanet.com/technology/b ... tware/688/

The case of the stolen Goldman software
By Dana Blankenhorn | Jul 7, 2009

It reads like the first chapter of a William Gibson novel. (That’s Gibson to the left.)

A Russian immigrant is arrested at Newark Airport and charged with theft of trade secrets in the form of software.

But these are no ordinary secrets. The immigrant is a former Goldman Sachs vice president and the software is the trading company’s “secret sauce,” a system it uses to earn millions of dollars each year for its clients, partners and shareholders.

The accused, Sergey Aleynikov, is 39 and an accomplished ballroom dancer. New York Magazine scared up proof of that, along with a denial of the charges from his wife, and the statement that he’s been a good American for 20 years.

Maybe too good.

Aleynikov announced d he was quitting a few weeks ago to join a firm in Chicago, for three times the money. He then allegedly moved 32 megabytes to a server in Germany and tried to erase his tracks from the Goldman computer record, working from both his home and the office.

Aleynikov’s story is quite different. It was open source stuff he wanted for his new job, he said, and any other downloads were accidental.

Here’s where it gets good.

The Web site Zero Hedge found legal documents from a 1997 civil case in California naming a Sergei Aleynikov, a charge of trademark infringement brought by the owners of the game show Wheel of Fortune.

A Kansas City site called the Pitch writes that a co-defendant in that case, Leonid Ivanutenko, also ran a firm called Express Shipping Services that was named as a front for the Russian mafia in a separate case.

That 1997 case involved an effort to copy the game show Wheel of Fortune as an online game called Fortune Wheel, which was finally shut down in 1998 after a complaint to its Web host.

A third defendant in that case, Vadim Resyev, had an alias of Vadim Arefiev. I may be talking here about a different person, but Linked In lists a Vadim Arefiev as a senior developer and system analyst at Merrill Lynch.

Small world, especially if this Arefiev is the same Arefiev whom Aleynikov previously worked with. Although it is possible neither ever met or did business with Ivanutenko a decade ago. For all I know those names are as common in Russia as Smith, Jones and Brown are here. What I have given, in the previous five paragraphs, is pure speculation based on a littie Googling.

But it makes a great story.

Security expert Bruce Schneier told The New York Times Goldman made all the right moves in this case, but if Russian gangsters got the Aleynikov code from Germany then Goldman’s trading secrets may be blown anyway.

Since the arrest happened Friday the question needs to be asked. Assuming the Sergei Aleynikov arrested at Newark is the same Sergei Aleynikov who tried to steal Wheel of Fortune with a mobbed-up partner, did President Obama bring this up with President Putin in their meetings earlier today?

If Goldman Sachs’ trading secrets are now in the hands of Russian gangsters, who benefits? How much cooperation will Russia offer in cracking the case, and what might that mean for bilateral relations?

And what about Goldman Sachs? We’re talking about a company that drew tens of billions in bailout money, whose executives have directed American economic policy for years. How could they employ someone with Aleynikov’s track record in the first place? Is there something deeper going on?

I’m sure Mr. Gibson can handle the rest much better than I can.
[/url]

[stefano]

“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,”

That's quite funny. Of course if Goldman does it, it's not illegal.

[Penguin]

Gold - man.

[JackRiddler]

.

How could they employ someone with Aleynikov’s track record in the first place? Is there something deeper going on?

That's a joke, right?

.

[JackRiddler]

.

They "make" millions of dollars a year by having software that's faster than others, allowing them to front-run on market trends, timed to the microsecond.

Which is to say, they suck millions of dollars out of the rest of the market. For nothing. Better'n alchemy.

Unravel, Goldman Sachs! Burn in the light of day! Begone!

Oh, wait, they already did.

Then they had their former CEOs push "new game" with the Fed and Treasury.

It's not an exaggeration to say that whatever Goldman does is made legal by the fact of Goldman doing it. It just is so. And even after they do it, others who venture into the same behavior still do so at their own risk.

.

[wintler2]

I don't believe that GS has any magic code that explains its profitability, i think the very average-ness of its trading code might be the secret, along with the origin of the buy/sell/hold signals plugged into that software that enable GS to beat the market. In other words, GS profits as a servant to the very rich and powerful and routinely uses insider information from same to 'beat'/loot markets.

[Nordic]

“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,”

That's quite funny. Of course if Goldman does it, it's not illegal.

\
\
That is, indeed, one of the funniest quotes I've seen in a long time. It should win some kind of monthly award or something.

[StarmanSkye]

stefano wrote:


seemslikeadream wrote:
“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,”


That's quite funny. Of course if Goldman does it, it's not illegal.
\
\
That is, indeed, one of the funniest quotes I've seen in a long time. It should win some kind of monthly award or something.

It sure smacked me hard alonside my funny-bone too. Tho instead of Ha-Ha funny, it was more like the sharp stinging-rebuke fiery echo of an overstimulated neural pathway throbbing in syncopated agony.

And what Jack said about if Goldman Sachs does it its perfectly legal, but if someone else does it, its an unholy crime.

Goes to affirm that GS has infiltrated the federal bureaucracy and its influence now saturates every major economic policy-making and administrative section of government. An almost perfect symbiosis, as a financial-leech parasite deeply embedded within the body host of USA, camofouged and hidden-in-plain-sight as an integral major organ vital to keeping the organism healthy and alive and reproducing -- meanwhile slowly sucking the lifeblood primal juices dry, preparatory to jumping-ship on another victim, leaving the original host a dry, dessicated husk.

Interesting analogy I recently heard Gerald Celente say about the US's historic pillaging, first as Manifest Destiny spreading west across the continent, then globally through wars and power-projection conflicts and neo-colonial conquest, and now returning to plunder the remaining private assets and resources of the nation -- a full-circle Manifest Destiny returning to the nest it hatched from (that's my strained elaboration, not Geralds.)

So, what's the connection, or is there one, between GS and the globalist agenda to bankrupt the First World via Federal Reserve, IRS, World Bank and IMF, the Economic Hitmen 3rd world debt-peonage, etc? Surely there's a positive link?

[smiths]

Damien: Most powerful institutions such as the Federal Reserve and Vatican dismiss most criticisms as “fringe conspiracy theory.” Why should the average citizen not dismiss your claims against Goldman as fringe conspiracies about bankers or Jews?

Matt Taibbi: That was the tactical criticism I got from Goldman who said to the media, “Next thing you know he’s going to blame us for the Kennedy assassination and say we faked the moon landing.” But if you pay attention to all the criticisms they are leveling, it’s what we call in this business a “non-denial denial.” When people respond by calling names and changing the subject, it means they don’t have any issue with the factual allegations in the article.

[Ben D]

“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,” Facciponti said, according to a recording of the hearing made public today.

Is this the sort of software that the PPT would use to manipulate the market?

And those spectacular late rallies!

[slomo]

[U.S. prosecutor Joseph Facciponte] added that because of the way this software interfaces with the various markets and exchanges, the bank has warned it could be used to "manipulate markets in unfair ways."

The most fascinating thing about this quote is that it reveals that government officials still think the American public has any confidence at all in its institutions. Restating the obvious, Facciponte's subtext is that Goldman Sachs, who developed the software with certain capabilities in mind, would never ever stoop to manipulating the markets. Does anybody really believe that Goldman Sachs is a model of ethical and benevolent corporate citizenship? Do government officials still believe that they're successfully hoodwinking Americans?

[MinM]

The Web site Zero Hedge found legal documents from a 1997 civil case in California naming a Sergei Aleynikov, a charge of trademark infringement brought by the owners of the game show Wheel of Fortune.

A Kansas City site called the Pitch writes that a co-defendant in that case, Leonid Ivanutenko, also ran a firm called Express Shipping Services that was named as a front for the Russian mafia in a separate case.

That 1997 case involved an effort to copy the game show Wheel of Fortune as an online game called Fortune Wheel, which was finally shut down in 1998 after a complaint to its Web host.

A third defendant in that case, Vadim Resyev, had an alias of Vadim Arefiev. I may be talking here about a different person, but Linked In lists a Vadim Arefiev as a senior developer and system analyst at Merrill Lynch.

Small world, especially if this Arefiev is the same Arefiev whom Aleynikov previously worked with. Although it is possible neither ever met or did business with Ivanutenko a decade ago. For all I know those names are as common in Russia as Smith, Jones and Brown are here. What I have given, in the previous five paragraphs, is pure speculation based on a littie Googling.

But it makes a great story.

Security expert Bruce Schneier told The New York Times Goldman made all the right moves in this case, but if Russian gangsters got the Aleynikov code from Germany then Goldman’s trading secrets may be blown anyway.

Since the arrest happened Friday the question needs to be asked. Assuming the Sergei Aleynikov arrested at Newark is the same Sergei Aleynikov who tried to steal Wheel of Fortune with a mobbed-up partner, did President Obama bring this up with President Putin in their meetings earlier today?

If Goldman Sachs’ trading secrets are now in the hands of Russian gangsters, who benefits? How much cooperation will Russia offer in cracking the case, and what might that mean for bilateral relations?

1997 was a big year for the Russian Mob

"Russian Organized Crime"
Center for Strategic & International Studies (CSIS) Task Force Report (1997)

frontline: mafia power play: the russian mafia in north america: rcmp report




http://www.pbs.org/wgbh/pages/frontline ... /csis.html

[JackRiddler]

I don't believe that GS has any magic code that explains its profitability, i think the very average-ness of its trading code might be the secret, along with the origin of the buy/sell/hold signals plugged into that software that enable GS to beat the market. In other words, GS profits as a servant to the very rich and powerful and routinely uses insider information from same to 'beat'/loot markets.

You're right. You're talking about the billions there, but variable. One basis for then also buying the best math guys and creating software that brings in millions more in a reliable revenue stream through minute-to-minute arbitrage, with them as the brokers. The rule is, any money that can be made, must be made. Nothing is peanuts to them - they'll grab everything they can reach.

[justdrew]

outrageous. "intent"? bullshit. I don't buy it. Fucking toady jury, probably bought, each and every one.

Ex-Goldman Sachs Programmer Convicted of Code Theft
Sergei Aleynikov faces a sentence of up to 15 tears [sic] for stealing sophisticated software used to execute trades.
By Paul McDougall, InformationWeek
Dec. 10, 2010

A Russian computer programmer accused of stealing sensitive trading code from investment bank Goldman Sachs was found guilty on Friday.

A Manhattan federal court jury convicted Sergey Aleynikov, 40, of theft of trade secrets and transportation of stolen property in interstate and foreign commerce. The North Caldwell, N.J. resident now faces a prison term of up to 15 years when he is sentenced on March 18.

While awaiting trial on charges of fraud and theft of trade secrets, Aleynikov was not allowed to access any of the data he allegedly stole. He was also barred from traveling beyond the New York City metro area and authorities monitored his computer use.

According to the original criminal complaint against Aleynikov, he "copied, without authorization, proprietary computer code belonging to a financial institution in the United States and then uploaded the code to a computer server in Germany."

The code in question was part of a computer program that Goldman used to execute trades at the best possible prices.

"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," according to the original complaint Aleynikov, which was filed in July, 2009.

The programmer joined Goldman Sachs in May, 2007, and was paid an annual salary of $400,000, according to records.

He was apprehended after Goldman Sachs noticed large amounts of data being uploaded from its servers via HTTPS transfers. The uploads, 32 MB in total, were ultimately traced to Aleynikov's workstation, the complaint stated.

Prosecutors alleged that Aleynikov carried out the theft between June 1 and July 3, 2008.

Sergey Aleynikov is a former Goldman Sachs computer programmer. He is accused [1] of stealing computer code that Goldman Sachs used to perform proprietary trading. According to Assistant United States Attorney Joseph Facciponti, "there is a danger that somebody who knew how to use this program could use it to manipulate markets in unfair ways." [ yeah, like by GS FFS ]

He emigrated from Russia to the US in 1991. He is married to Elina, and a father of three children.

From December 1998 to April 2007, he served as the director of Routing R&D division of IDT Corporation. [1]

He contributed to a number of open source Erlang projects. [2] He also published CPAN modules. [3]

On July 3, 2009, he was arrested by FBI agents at Newark Liberty International Airport after Goldman raised the alarm over a suspected security breach.

He is accused of improperly copying software codes that performs "sophisticated, high-speed and high-volume trades on various stock and commodity markets", as described by Goldman.

He was employed for two years at Goldman on a salary of $400,000. In early June, he left Goldman to join Teza Technologies, a Chicago start-up which offered to triple his pay.