--Matthew Goldstein is a Reuters columnist. The views expressed
are his own.--
By Matthew Goldstein
NEW YORK, July 5 Did someone try to steal
Goldman Sachs' secret sauce?
While most in the United States were celebrating the Fourth
of July holiday, a Russian immigrant living in New Jersey was
being held on federal charges of stealing secret computer
trading codes from a major New York-based financial
institution. Authorities did not identify the firm, but sources
say that institution is none other than Goldman Sachs.
The charges, if proven, are significant because the codes
that the accused, Sergey Aleynikov, tried to steal are the
secret sauce to Goldman's automated stock and commodities
trading business. Federal authorities contend 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.
The platform is one of the things that gives Goldman an
advantage over the competition when it comes to the rapid-fire
trading of stocks and commodities. Federal authorities say the
platform quickly processes rapid developments in the markets
and using secret mathematical formulas, allows the firm to make
highly-profitable automated trades.
The criminal case has the potential to shed a light on the
inner workings of an important profit center for Goldman and
other Wall Street firms. The charges also raise serious
questions about the safeguards that Wall Street firms deploy to
protect these costly-to-build proprietary trading systems.
The criminal case began to unfold on the evening of July 3,
when Aleynikov was arrested by FBI agents at Newark Airport
after returning from Chicago. Aleynikov apparently had just
started a job with another big firm in Chicago after leaving
his previous employer in New York in early June. It appears
that the financial institution allegedly victimized by
Aleynikov had alerted federal authorities that its former
employee might be up to no good.
On July 4, Aleynikov was processed on a "theft of trade
secrets charge" in a criminal complaint. As of this morning, he
was still being held at the Metropolitan Correction Center in
A Goldman spokesman declined to comment on the incident.
Calls to Aleynikov's home in New Jersey, which he shares with
his wife, were not returned. A spokeswoman for the United
States Attorney's Office in Manhattan did not comment.
The Federal Bureau of Investigation, in charging Aleynikov,
says he began working for the major financial institution in
May 2007 as a computer programmer and left in early June. That
matches the description of a man named Serge Aleynikov on the
social networking site LinkedIn (the difference in spelling of
the first name could not be immediately explained).
The biographical information for Aleynikov on LinkedIn says
he joined Goldman in May 2007 and was vice president for equity
strategy. The bio says he was responsible for "development of a
distributed real-time co-located high-frequency trading
The case against Aleynikov may explain why the New York
Stock Exchange moved quickly last week to stop reporting
program stock trading for its most active firms. Goldman was
often at the top of the chart -- far ahead of its competitors.
It's possible Goldman had asked the NYSE to stop reporting the
number after it discovered that someone may have infiltrated
the proprietary computer codes it uses.
Here's the way the criminal complaint describes the Goldman
"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. Among other things, the platform
is capable of quickly obtaining and processing information
regarding rapid developments in these markets."
Federal authorities appear to believe Aleynikov may have
had help. The German website that Aleynikov is accused of
uploading the stolen information to is registered to a person
While the case is still unfolding, there is more
information to unearth about Aleynikov. For instance, it
appears that he and his wife are competitive ballroom
dancers--there are videos of them on YouTube.com.
Many questions remain. Which Chicago firm hired Aleynikov?
The job he took in Chicago, according to the criminal
complaint, paid nearly three times more than his $400,000
salary at Goldman.
Also there's more to learn about anyone who might have been
helping him and the fallout the case may have for Goldman.
When he was arrested, Aleynikov told the FBI he "only intended
to collect 'open source' files on which he had worked, but
later realized that he had obtained more files than he
Quick, get this guy a good lawyer.
One question investors need to ask is whether this incident
will have any impact on Goldman's second-quarter earnings. The
alleged wrongdoing by Aleynikov took place at the beginning of
June--although it's not clear if it had any material impact on
(Editing by Jeffrey Cane, Martin Howell)