ETF News

UPDATE 2-Jury convicts ex-Goldman man in trade secrets case

* Sergey Aleynikov convicted on two criminal counts

* Charged with stealing part of speed-trading code (Adds bail conditions, sentencing date, trial evidence)

NEW YORK, Dec 10 (Reuters) - A jury on Friday convicted a former Goldman Sachs GS.N computer programmer on criminal charges of stealing secret high-frequency trading code from Wall Street's most influential bank.

Sergey Aleynikov, 40, was indicted in February under the Economic Espionage Act on accusations he copied and removed computer code from Goldman in June 2009 before taking a new job with Teza Technologies LLC, a high-frequency trading start-up firm.

Jurors reached their verdict after a two week-long trial in U.S. District Court in New York. They deliberated for about six hours over Thursday and Friday.

Aleynikov’s lawyer, Kevin Marino, contended at the trial that his client may have breached Goldman’s confidentiality policy but he did not harm and could not harm the firm.

U.S. District Judge Denise Cote re-imposed bail conditions on Aleynikov and ordered him confined to his home with electronic monitoring. Aleynikov’s sentencing proceeding is scheduled for March 18.

The trial, which began Nov. 29, was punctuated by programming terms such as “bash history” and “tarball,” as well as testimony by Goldman executives and trading experts. Judge Cote closed the court four times for evidence deemed sensitive to the bank’s operation.

Aleynikov, an immigrant from Russia who became a U.S. citizen, has been free on bail since his arrest. The criminal charges carry a maximum prison sentence of 10 years.

Prosecutors told jurors that Aleynikov put the code on a storage website. He encrypted the code and also copied it onto a flash drive and other computers so he could take it to Teza, prosecutors said. They said he also consolidated the files into a single file known as a “tarball.”

Aleynikov tried to cover his tracks by deleting what is known as his “bash history” on his last day at Goldman Sachs on June 5, 2009, prosecutors said. The term refers to the most recent set of commands executed by a particular programmer or user of the system.

Teza founder Mikhail “Misha” Malyshev testified at the trial that his firm barred employees from using proprietary code of any other company. Malyshev also testified that he would never have wanted Goldman’s high-frequency trading code.

Aleynikov’s lawyer told the jury that his client cooperated with the FBI when he was arrested at Newark Liberty International Airport in New Jersey on July 3, 2009. Aleynikov told an FBI agent that the Goldman directories he copied were loaded with “open source code,” which no person or firm has proprietary control over, Marino said.

Aleynikov was a long-time adherent of open source code, the court heard. Marino said Aleynikov violated a confidentiality agreement he had as a Goldman Sachs employee, but criminal prosecution was unnecessary.

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. There are hundreds of different open source licenses and little case law exists around the licensing.

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 Tim Dobbyn and Steve Orlofsky)