In July, 2009, Goldman Sachs high frequency trading operations featured prominently in international news headlines. Most Americans were celebrating our nation’s liberty at Independence Day festivities. The day before, federal officials had deprived a Russian immigrant of his liberty on espionage charges. Former Goldman Sachs programmer Sergey Aleynikov was arrested on July 3, 2009, for allegedly violating the Economic Espionage and Interstate Transportation of Stolen Property Acts.
Specifically, the government charged Aleynikov with stealing top-secret computer codes and files containing vital Goldman Sachs automated trading data. The programming components Aleynikov purportedly pilfered generated multi-million-dollar profits for the huge Wall Street trading firm every year.
High frequency trading (“HFT”) networks give traders extremely short previews of pending securities trades. Based on this advance knowledge, offsetting countertrades can be executed with a millionth of a second. This capability gave Goldman Sachs a huge advantage in the securities exchange market.
The Goldman Sachs high frequency trading fiasco has brought many questions to the forefront of the securities exchange arena. Chief among these is whether propriety HFT systems are sufficiently secure.
There is evidence of heightened security awareness among Wall Street high frequency trading firms. More frequent modification of HFT algorithms and strategies has been employed since the Goldman Sachs affair. Much tighter regulation of HFT transactions also followed closely on the heels of Aleynikov’s arrest.
Aleynikov denied any intent to steal proprietary data. Rather, he claims that he only took source code he had written during his Goldman Sachs tenure. Aleynikov’s defense attorney Kevin Marion denied that Goldman Sachs ever intended to place its HFT system “into the stream of commerce.” The apparent implication is that the data at issue in the matter was not proprietary, even if improperly misappropriated.
Allegations that Aleynikov uploaded the code to a German website owned by a London resident add intrigue to the case. Aleynikov’s regular trips to Russia and evidence that he was assisted in the plot add implications of international espionage to the story.
In December 2010, Aleynikov was convicted of all charges in US District Court and sentenced to serve 97 months in prison. The case is U.S. v. Aleynikov, 1:10-cr-00096, U.S. District Court, Southern District of New York. During a May 2011 hearing, US prosecutors argued that Aleynikov is a high flight risk. A federal Appeals Court denied Aleynikov’s request for release on bail pending the outcome of his appeal.
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