Archive

from Commentaries:

Sergey strikes back

The case of Sergey Aleynikov, the former Goldman Sachs programmer charged with stealing some of the top secret code to the investment bank's high-frequency trading program, is going on the offensive.

Aleynikov has filed a subpoena on his former employer, seeking access to some information--mainly his personnel file. And Goldman has responded by filing a motion in federal court to quash the subpoena. Goldman filed its motion on Aug. 6, a source familiar with the matter says.

A hearing on Goldman's motion to put the kibosh on Aleynikov's request for documents will be heard Monday afternoon beofre Judge Paul Crotty.

The hearing on Aleynikov's motion comes as the attorney for the former Goldman employee and federal prosecutors continue to work towards trying to reach a potential plea deal in the case.

I'm trying to a copy of Goldman's motion. At this point, we don't know what information Aleynikov is seeking. But this could be a hot hearing.

UPDATE: Just got a copy of Goldman's motion and it appears much of what Aleynikov wants are personnel records regarding "performance reviews by peers and superiors, complaints, employee progress reports, training history records'' etc.

Goldman says Aleynikov's request should be denied because the "crux of the complaint is an allegation of theft, not an employment or wage dispute.''

from Commentaries:

Will Sergey cut a deal?

It looks like federal prosecutors may be trying to cut a deal with alleged Goldman Sachs high-frequency trading code stealer Sergey Aleynikov.

Today was the day for prosecutors to indict Aleynikov, who was arrested on July 3 on the theft charges. But in a court filing, prosecutors told the presiding magistrate judge that they need another 14 days to continue discussions with Aleynikov's lawyer about a "possible disposition.''

In the legal world, a "possible disposition'' means a deal.

Now it could be that prosecutors want to get Aleynikov to plead guilty so he can provide evidence against other potential defendants. But I don't think that's the case here.

To date, there's no evidence that Aleynikov shared any of the illegally obtained "source code" with his new employers at Teza Technologies, an upstart high-frequency trading firm founded by former Citadel Investment Group employees.

In fact, prosecutors and Sergey's lawyer have been talking about a possible resolution of the case since July 7--a day after he made bail.

The more likely scenario is that federal prosecutors are anxious to make this case go away. There's been a lot of criticism that the government may have overplayed its hand by making Aleynikov's alleged theft seem like the crime of the century. Some, including myself, have suggested it almost appeared like federal prosecutors were doing the bidding of Goldman.

from Commentaries:

Don’t mess with Goldman

Poor Sergey Aleynikov.

The former Goldman Sachs programmer who allegedly stole some of the Wall Street firm's top secret proprietary trading code picked the wrong firm to mess with--really. If Aleynikov had been an employee of UBS, he might only be facing a civil lawsuit right now--not federal criminal charges.

In March, nearly four months before Goldman ran to federal prosecutors with their concerns about Aleynikov, UBS was in New York State Supreme Court filing a civil lawsuit against three former employees, charging them with doing much the same thing the ex-Goldman employee did. The only difference is no criminal charges have been filed against the three former UBS employees.

The UBS lawsuit was first reported in June by Dealbreaker.com, after going unnoticed for several weeks. It's getting more attention now in the wake of the Goldman case, which has begun to shed light on the importance of so-called high frequency trading strategies to Wall Street firms.

In the UBS lawsuit, which is still pending, UBS alleged that Jatin Suryawanashi, Partha Sarkar and Sanjay Girdhar took "source code for UBS' trade secret algorithmic trading programs." The Swiss-based investment bank further alleged the ex-employees intended to use the information in their new prop trading jobs at Jefferies & Company.

Ever since news of Aleynikov's arrest broke on July 4th weekend, there have been serious questions about whether federal prosecutors reacted so swiftly only because the alleged victim was Goldman. The absence of any criminal charges against the former UBS employees only adds to the suspicion that Aleynikov is getting disparate treatment.

To be sure, every case is different. And there may be facts in the UBS incident that render it a purely civil matter. In fact, the former UBS employees are trying to force the dispute out of state court and into arbitration, claiming it stems from an employment issue.

from Commentaries:

Chez Sergey

Earlier today, my Reuters colleague Steve Eder posted about his journey Sunday to the New Jersey mansion of alleged Goldman Sachs trading code thief Sergey Aleynikov. And what a home it is.

It appears Sergey and his family recently moved into a brand spanking new McMansion in North Caldwell, NJ. As I pointed out last week, North Caldwell just happens to the same town that Tony Soprano was supposed to reside in. And the house Sergey bought isn't much smaller than Tony's.

Guess that means Sergey wasn't planning to relocate to Chicago for his new $1.2 million-a-year job with Teza Technologies.

The Aleynikov abode on Arbor Road is valued at $1.14 million, according to a financial statement Sergey submitted to federal authorities following his July 3 arrest. Other assets Aleynikov listed was a home in Little Falls, NJ he and his wife, Elina, are trying to sell. He listed the market value for that more modest home at $550,000.

Altogether, he reported shelling out $6,000 a month in mortgage payments. With Sergey suspended from this Teza job and Elina not currently working, it won't be long before the North Caldwell house is probably on the market too.

Not surprisingly, Magistrate Judge Kevin N. Fox ruled that Sergey is not entited to court-appointed counsel beyond his initial court appearance.

from Commentaries:

Meet Jason, a former Sergey colleague

Jason is one of the more than 100 programmers working on the secret sauce code that drives Goldman Sachs' automated trading systems--also known as high-frequency trading.

How do I know? Well it says so here, on a Goldman promotional web page, where "real" employees for the firm talk about their jobs and their lives.

I'm assuming Jason (no last name given) is a real person. There is a photo of him. He tells us he works in Japan in the equity trading group. And Jason talks about coming to "Goldman Sachs through campus recruiting at Rensselaer Polytechnic Institute."  

But Jason's brief personal biography is not so interesting as the description of what he does for Goldman, which involves "developing and servicing high-frequency, low-latency applications for trading systems."

Or as Jason puts it: "Basically, our apps make the trades happen." 

Hmm, that sounds a lot like how Sergey Aleynikov, the man who allegedly stole some of Goldman's HFT computer code, described his job on his LinkedIn page.

Wonder if Goldman ever had a Meet Sergey page?

from Commentaries:

Goldman should disclose more

Goldman Sachs doesn't report second-quarter earnings until Tuesday, but some Wall Street analysts aren't waiting to sing the giant investment firm's praises.

What's impressing the analysts the most is Goldman's ability to again print money like no one else -- especially when it comes to trading stocks, bonds, commodities and currencies. Bank of America analyst Guy Moszkowski sounded almost giddy the other day in predicting blowout trading revenues for Goldman, describing the firm as "arguably the most well-respected investment bank." Moszkowski now expects net trading revenues to top the record $25 billion raked in by Goldman in 2007.

It makes one fear that analysts will again start prefacing their questions during the firm's scheduled conference call with comments like "Great quarter, guys."

Please don't.

Before everyone starts crowning Goldman the king of trading, is it too much to ask that analysts ask more probing questions of the firm's executives? Investors deserve more disclosure about where all those dollars are coming from.

A question or two about how much of the trading revenues was related to client trades versus proprietary trades for the firm's own account would be a good place to start. Don't let Goldman executives get away with the firm's standard answer about how most of its risk-taking is for clients, without ever quantifying that risk.

Now given Goldman's general animus to the notion of fuller disclosure, I wouldn't expect its executives to say much if pressed by analysts. So it probably will require the power of the Federal Reserve -- Goldman's new overseer -- to lean on the investment bank to force it to provide more detail about the firm's trading prowess.

from Commentaries:

Citadel joins the Sergey fray

Ken Griffin's Citadel Investment Group just filed a lawsuit against former top trader Misha Malyshev for apparently violating a non-compete agreement he signed when leaving the big Chicago hedge fund earlier this year. Malyshev, of course, is the founder of Teza Technologies, an upstart high-frequency trading hedge fund that hired away alleged Goldman Sachs code-cracker Sergey Aleynikov.

Malyshev and his partners, all former Citadel people, put out a statement on Tuesday saying they suspended Aleynikov after learning of his July 3 arrest. The former Citadel guys also say they were unware of Aleynikov's alleged theft of Goldman's proprietary trading computer code.

I don't have a copy of the complaint yet, so I don't know whether Citadel has sued anyone else at Teza. Nor do I know the exact nature of the legal claims. I'll update when I get more.

Update:

Just got the complaint and motion for preliminary injunction filed by Citadel and the hedge fund has come out smoking, calling this a case of "industrial espionage.'' The big hedge fund is suing Malyshev, his two partners and the upstart fund.

Citadel seems to suggest that in hiring Aleynikov, a man charged with stealing computer code from Goldman, it needs to put the kibosh on Misha & Co. to protect its own trading secrets and proprietary codes.

Personally, linking the hiring of Aleynikov to a violation of any non-compete agreements Misha & Co. had with Citadel seems a bit of a stretch. If Misha & Co. are in violation of the terms of the non-compete agreement, one could argue the Citadel's trade secrets might be in jeopardy regardless of Aleynikov.

from Commentaries:

Is Goldman Sachs evil?

Is Goldman Sachs really a "vampire squid wrapped around the face of humanity"?

That's the view of journalist Matt Taibbi in a long article in Rolling Stone magazine. Taibbi blames the firm for almost single-handedly orchestrating every investment calamity since the Great Depression. And judging by much of the reaction in the blogosphere, Taibbi's view has become the accepted meme when talking about Goldman.

Yet that simple storyline, as compelling as it may be, is far from the truth.

The reality is Goldman is no more of a sinner than any other Wall Street bank. Is Goldman really any more responsible for the inflating and the bursting of the housing bubble than

But what does separate Goldman from the pack is that it consistently plays the trading game with a far more ruthless attitude.

Goldman's rough-and-tumble style is on display in the case of a former employee accused of stealing some of its secret proprietary trading codes. According to the criminal complaint, Goldman learned about the alleged skulduggery of its former employee, Sergey Aleynikov, sometime in mid-June. But the firm waited until July 1, right before the start of the Fourth of July holiday, to notify federal authorities of the theft.

Aleynikov's late evening arrest on July 3 forced an unusual holiday court appearance the next day in federal court in Manhattan. The terms of the bail were rather steep. And, of course, the banks were closed for the next two days -- all but insuring Aleynikov would spend a few more nights in jail.

from Commentaries:

Sergey in the land of Tony

So it seems alleged Goldman Sachs code breaker Sergey Aleynikov doesn't live in the tiny town of Little Falls, NJ as every one thought. It appears Aleynikov and his wife still own a house in Little Falls but it's up for sale and vacant.

For the moment at least, Aleynikov, who was sprung from federal prison late Monday, is living in a home in North Caldwell, NJ. Now for fans of the TV show the Sopranos, that town should sound familiar because it's where Tony and his family were supposed to live.

In fact, a lot of the Sopranos was filled in and around North Caldwell. Looks like the residents of that town may need to start getting used to a few more TV crews around.

from Commentaries:

Sergey and Misha

The name of the Chicago firm that hired alleged Goldman code-cracker Sergey Aleynikov is out and it's a name you've probably never heard of before. That's because Teza Technologies LLC is a new firm--formed in May--by former Citadel Investment Group trader Misha Malyshev.

Malyshev, who had been a top high-frequency trader at Citadel, left the giant hedge fund in February because he felt he was not being sufficiently compensated, says a source familiar with the situation. Malyshev's group was one of the more profitable last year for Ken Griffin's operation, which overall had one of its worst years ever in 2008

And here's the thing: I'm told Malyshev signed a nine month non-compete agreement with Citadel when he left.

Bloomberg first reported that Teza hired Aleynikov and got an email statement from the start-up, in which the firm said it "was not aware of the alleged misconduct.''

In the email statement, Teza also said it has suspended Aleynikov without pay and didn't learn of his July 3 arrest until July 5. That, of course, is the day that we at Reuters broke the news that Aleynikov was arrested by federal authorities and charged with stealing the source code for Goldman's rapid-fire stock and commodities trading platform.

Right now, Teza is a small operation at best. There's no website for the firm and it doesn't appear to have a listed phone number. Illinois incorporation records reveal the company was formed on May 5. One of the mailing addresses appears to be the home address for one of the principals, Matthew Hinerfeld, who is an ex-Citadel guy too.

Hinerfeld worked in the counsel's office at Citadel. So is another founder, Jace Kohlmeier, who had the same non-compete agreement with Citadel as Malyshev.