UPDATE 1-Jury hears opening salvos in Goldman secrets trial

Tue Nov 30, 2010 2:34pm EST

* Case about programmer's theft and greed -- prosecutor

* Aleynikov had no criminal intent to harm bank -- defense

* Focus on secret code used in high-frequency trading (Adds quotes from prosecutor and defense lawyer, legal expert)

By Grant McCool

NEW YORK, Nov 30 (Reuters) - A former Goldman Sachs Group Inc (GS.N) computer programmer charged with theft of valuable speed-trading code did not, and could not, harm Wall Street's most influential bank, his lawyer told a jury on Tuesday.

But a federal prosecutor told jurors Sergey Aleynikov stole critical parts of Goldman's top-secret high-frequency trading program because he would earn hundreds of thousands of dollars more using the code at another company.

Aleynikov, 40, is on trial in U.S. District Court in Manhattan on charges of trade secrets theft, accused of uploading Goldman's proprietary code and storing it on a website. Prosecutors say he planned to use the code to help his new employer, Teza Technologies LLC in Chicago, build a high-frequency trading system.

"I predict you will not hear one word of evidence that Sergey Aleynikov had any intention to harm Goldman Sachs in any way, shape or form," defense lawyer Kevin Marino told the 12 jurors and five alternates in opening statements. "Nor could he have interfered with Goldman's right to the code."

High-frequency trading, or high-speed automated trading, has become an increasingly important and competitive business. The closely-guarded computer codes help firms trade shares in milliseconds and earns millions of dollars.

U.S. prosecutors had asked Judge Denise Cote to close parts of the trial to protect Goldman's trade secrets, but she said she would consider the issues as they came up.

Marino said in his opening statement that Aleynikov told the FBI after his July 2009 arrest he had copied Goldman directories that were loaded with "open source code," which no person or firm has proprietary control over.

He said Aleynikov mistakenly violated a confidentiality agreement he had as a Goldman Sachs employee, but criminal prosecution was unnecessary.

"This was a breach of confidentiality, he shouldn't have done it," Marino said. "Regrettable? Pretty regrettable, but it is not a federal crime."

COMPUTER LANGUAGE

Many programmers have created and promoted the computer programming language known as "open source code" to be shared on public sites at no cost, but licensing issues are murky.

Aleynikov was a longtime adherent of open source code, his lawyer told the court as Aleynikov sat at the defense table in a black suit, taking notes.

Brent Cossrow, a lawyer who practices in the area of employee defection and trade secrets, but is not involved in the trial, said little case law exists around open source code licensing.

"There are hundreds of different open source licenses. They don't all say the same thing," said Cossrow, of law firm Fisher & Phillips LLP in Radnor, Pennsylvania.

"There are some who believe on the one hand that when you drop open source code into this type of larger program, it dilutes the whole thing. There are others who believe that it really doesn't because it is one piece of a larger proprietary pie."

Prosecutor Joseph Facciponti told jurors Aleynikov put the code on a storage website and also copied it onto a flash drive and other computers.

Facciponti said: "The evidence will show that he thought he had found a foolproof way of getting around the security barriers" at Goldman Sachs.

The prosecutor said that, at Teza, Aleynikov stood to earn about three times the $400,000 he was paid annually by Goldman Sachs as one of its highest-paid computer programmers.

Aleynikov, an immigrant from Russia who became a U.S. citizen, has been free on bail since his arrest. If convicted, he faces up to 10 years in prison on two criminal counts.

In a trial earlier this month with similar allegations, a former Societe Generale (SOGN.PA) high-frequency trader, Samarth Agrawal, was convicted of trade secrets theft by a jury. [ID:nN19191422]

The case is USA v Aleynikov, U.S. District Court for the Southern District of New York, No. 10-96. (Reporting by Grant McCool; editing by John Wallace and Andre Grenon)

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