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A Goldman trading scandal?

July 5, 2009

Did someone try to steal Goldman Sachs’ secret sauce?

While most in the US were celebrating the 4th of July, a Russian immigrant living in New Jersey was being held on federal charges of stealing top-secret computer trading codes from a major New York-based financial institution—that sources say is none other than Goldman Sachs.

The allegations, if true, are big news because the codes the accused man, Sergey Aleynikov, tried to steal is the secret code to unlocking Goldman’s automated stocks and commodities trading businesses. Federal authorities allege 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 apparently gives Goldman a leg-up over the competition when it comes to rapid-fire trading of stocks and commodities. Federal authorities say the platform quickly processes rapid developments in the markets and uses top secret mathematical formulas to allow 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 federal charges also raise serious questions about the safeguards Wall Street firms deploy to protect their proprietary trading systems.

The criminal case began to unfold on the evening of July 3 when Aleynikov was arrested by FBI agents at Newark Liberty Airport, after returning from Chicago. Aleynikov had just started a job with another firm in Chicago, after leaving the big firm in NY in early June. It appears 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 that was filed in federal court in Manhattan. As of this afternoon, he was still being held in federal custody pending posting of bail.

A Goldman spokesman declined to comment on the incident.  A spokeswoman for the US Attorney in the Southern District of New York didn’t comment. Authorities reportedly took all the computers from Aleynikov’s home in New Jersey.

Sabrina Shroff, Aleynikov’s lawyer, says the facts will bear out that her client is innocent. She’s hoping he will be released from custody soon.

His wife, Elina, says her husband is innocent. Speaking in a phone interview from the couple’s New Jersey home, she says her husband worked hard for Goldman Sachs and has been a good citizen–noting he’s lived in the US for 19 years. She seems mystified that federal authorities would arrest him on the eve of a holiday.

The Federal Bureau of Investigations, 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 would appear to match the description of a man  named Serge Aleynikov, as it is listed on the social networking website LinkedIn.

The bio 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 platform.” In his own words, he goes on to describe the platform as “a very low latency (microseconds) event-driven market data processing, strategy and order submission engine.”

The case against Aleynikov may explain why the New York Stock Exchange moved quickly in the past week to alter its methodology for reporting program stock trading. Goldman often was at the top of the chart–far ahead of its competitors.

On the week ending June 19, Goldman, for instance, was ranked first on the NYSE program trading list. But on the week of June 22, Goldman mysteriously didn’t appear on the list of the top 15 firms at all. It simply vanished without any explanation. Then the NYSE announced it would change some of the data for calculating the trading report. The Zerohedge blog was all over this controversy a week ago.

And now Tyler Durden of ZeroHedge has come in with his own excellent analysis of this strange, strange criminal case. I highly recommend reading it.

It’s possible Goldman asked the NYSE to alter some of its reporting methodology after the firm discovered that someone may have infiltrated the proprietary computer codes it uses.

Here’s the way the criminal complaint describes the Goldman trading platform:

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.

Meanwhile, federal authorities appear to believe Aleynikov, who has lived in the US for more than a dozen years but frequently travels back-and-forth to his native Russia, may have had help. The German website that Aleynikov allegedly uploaded the stolen information to is registered to a person in London. That, of course, gives rise to speculation about this all being a case of international espionage.

This case is quickly unfolding and there’s plenty more information to unearth about Aleynikov. For instance, it appears that he and his wife are competitive ballroom dancers–there are some videos of them on youtube.com. The job he took in Chicago, according to the criminal complaint, paid nearly three times more than his $400,000 salary at Goldman.

Which Chicago firm hired Aleynikov? Inquiring minds want to know. But you can rule out the giant hedge fund conglomerate Citadel. It’s not them.

Also there’s more to learn about anyone who might have been helping him and the fallout this 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 intended.” But authorities say after he uploaded the files he encrypted them and “erased” the program he used to encrypt them.

It’s not clear why the authorities and apparently Goldman waited so long to move on Aleynikov, even though they knew he had uploaded the information weeks ago.

One question investors need to ask is whether this incident will have any impact on Goldman’s second-quarter earnings. The alleged wrongoing by Aleynikov took place at the beginning of the month–although it’s not clear if it had any material impact on automated trading.

Update: The NYSE has not stopped reported program trading results. Instead, it’s altered the method it uses for putting together that report.

Comments

How can Goldman expect to hold onto multi-billion $ earning algorithms and pay a key personnel component only $400k per annum, and maybe(?)a small bonus? Morons!

All alg houses run this risk, that’s why they make the pertinent knowledgebase so much $ that it is a disincentive to leave, and/or offer up a partnership/ownership wherein, when and if the firm itself is ever sold, there’s a huge capital gain in the offing.

If an entity in London is suspect, I’d be investigating the larger, capable hedge fund operators living or based there, who had, let us say, a less than successful 2008/2009, and substantive or threatened client withdrawals. Who knows, could be a household, well respected name who is the thief … has motive, and the cash to buy the black box, and to trade.

Posted by SJJ | Report as abusive
 

I posted this article at darkpooltraders.com

Posted by Scott | Report as abusive
 

Sergey Aleynikov wasn\’t as lucky as Ye Tian from Morgan Stanley. Reason? MS isn\’t as evil as GS!

Posted by AC | Report as abusive
 

Was I the only one who cringed every time I saw “codes” in this article?

Reuters and especially Matt Goldstein: When referring to software, the word is “code” not “codes”. It is a mass noun to be used the same as the word “information”. You wouldn’t say that he allegedly “stole some of their informations” would you?

Posted by M L | Report as abusive
 

This is truly the sick part. I ‘buy’ something and then ‘sell’ it ten minutes later. I make 2, 5, 10%. For what? What did I do other than rape the bloodied corpse of civilization? In a recent New Yorker, there’s a quote about how the banksters are merely a mosquito on the carcass of a dinosaur. Notice in your day-to-day activities just how much “standing around” people do. Nobody’s actually DOING anything. We should be tearing up our front lawns and planting food. People have absolutely no clue about the extent of the crisis. I guarantee you that this is ALL due to some cretin on a computer who wrote the code to buy, sell, buy and sell ad infinitum. None of that has ANY value, and yet it is ALL we do now. We are already burning in hell, if you haven’t noticed. Peace.

 

What’s the file name?

Posted by Goldmann Madoff | Report as abusive
 

This is interesting. First Russian programmers were the ones brought into the US to write the derivatives software and trading systems in the 90′s. Think Sun workstations by the 1000′s. The Cap and Trade bill going through is a huge market for exchanges that will trade, essentially energy credit derivatives in a market estimated to grow to over a trillion dollars a year. It is the biggest scam job in history, brought to you out of fear of global warming. Where is the location of the trading exchange for Cap and Trade? Why of course right in Obama’s backyard: Chicago. I would bet the this guy was recruited by this new exchange being set up. Why else a 3X salary increase. This has Al Gore and the Clintanistas written all over it. When you research cap and trade, focus on the trade part. We are going to get ripped off big time!!! Fun to see the insiders already trying to screw each other.

 

M.L. You were not the only one to cringe, I wish I can do a regex to change every instance of “codes” to “source code”!

Posted by John M | Report as abusive
 

interesting- can you do that?

 

I’m guessing that the software contains evidence of illegal wrongdoing.

Posted by Ruggy | Report as abusive
 

Aleynikov is Jewish, not Russian.

Posted by NicSwiatlo | Report as abusive
 

“Aleynikov is Jewish, not Russian.” What a moronic, racist, 15-year-old’s comment. That’s like saying that somebody “is Christian, not American.”

“Jewish” is not a nationality. The guy is a Russian Jew, and this fact is entirely not germane to the story.

Posted by FinancialJournoNYC | Report as abusive
 

Things are becoming more and more sophisticated and more and more information to manage. Computers handle more stuff over time. When something is wrong with the computer, program or hardware, poof! At some point there is too much info to handle. Even with todays technology it is necessary for a person to become involved. These people get overwhelmed. Look at the mortgage crisis trying to find out what entity owns the loan. Even Goldman Sacks can handle only so much. Things are breaking down indeed.

Posted by jimbo | Report as abusive
 

No, the guy is right. A Jew stole from another Jew. Just like Madoff. If they stole from a goy, none of them would go to jail.

Posted by Smithson | Report as abusive
 

This case will be as secretive as possible, or Goldman risks to be exposed for putting the Goldman’s interests in front of their clients which could be illegal.

Posted by goldman sucks | Report as abusive
 

heh, I will search for it on emule..

Posted by heh | Report as abusive
 

so here it is: “buy when macd >=0 and sell when macd<0″ ;)

Posted by the most secret | Report as abusive
 

Pigs from GS take revenge about company change.

Posted by Viacheslav | Report as abusive
 

these so called propriatary trading files may contain records Goldman wants to never see the light of day. Their closeness to government policy and process should be more transparent. Should a Cray computer be influencing our stock markets? The value or our retirement funds? All traders know the market has been manipulated, where and when comes accountability?

Posted by robert | Report as abusive
 

I happen to know Sergej personally. tough to believe he’d do anything illegal, very nice guy. and in any case, it’s a white-collar crime; he’s no college shootist or child raper. actually. he’s a father of two wonderful girls. i hope this works out to the best outcome for his family, that’s for sure
and Smithson, why don’t you choke on your antisemitic b.s.

Posted by Aleks Yakubson | Report as abusive
 

Smithson is dunce who lost his $400 in the market crash. Ignore the idiot.

Posted by Truthteller | Report as abusive
 

This is just bulling by GS to little guy. This guy has not stolen anything properitory. GS is scared that he will reveal how GS was doing illegal stuff all the time. Before he open mouth, GS put him in Jail. How to steal from investors is properitory to GS?

Posted by Sam | Report as abusive
 

That just comfirms it, Wall Street is the biggest casino in the world and the house always win… in this case the house is Goldman Sachs. Never bet against the House.

Posted by jj | Report as abusive
 
 

What’s the fuss about? A coder misappropriating unwieldy program code belonging to Goldman Sachs? Perhaps, the files contain more vital company secrets.

Read more here:
http://brainmindinstrev.blogspot.com/200 9/07/national-security-intellectual-prop erty.html

 

Holy Cr*p !!!! I know what company he went to !

Posted by kk | Report as abusive
 

The leg up you referred to in your article as the means that GS stays ahead is not as much their secret computer program as much as it’s the secret advanced knowledge of intentions and other information that few outside themselves have privy to.
Many of us have watched this company operate with impunity regarding the securities laws that would land the rest of us UNDER the jail. Wake up to this pablum you print in the sincerest meaning of willful ignorance.
I don’t really know why I bothered.

Posted by Herman Christian | Report as abusive
 

maybe you will find some funky code inside conflicting the compliant regulation, who knows

Posted by wild_guess | Report as abusive
 

I think it was a programmer accident. He wanted sample code to keep around, in case he got layed off, most likely, and grabbed more than he thought (probably a masked move xx*.*). Anyways, unless he had a motive or tried to sell or use the secrets, it appears harmless.

The thing that is interesting, is how he managed to get the files. Most shops secure the security files so even programmers cannot read or copy. It sounds like a hole in the security.

Also, why is the media calling him a RUSSIAN IMMIGRANT. Heck, 50% of the people in my state are Russian immigrants, 25% are illegal aliens from Mexico, that would die if the U.S. didn’t give them a place to get food. The remainder are red blooded Americans that only work about 10% as hard as the illegals.

I think it is profiling until they prove this person worked for the SVR or FSB, or some other group.

Posted by Jeff Dunham | Report as abusive
 

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interesting read, someone did a follow up story on this here i found http://www.darkpooltraders.com

Posted by Wellington | Report as abusive
 

The real scandal could be that Goldman Sachs have been colluding with the NYSE to profit from proprietary information. Maybe that’s the real secret to their profits. If that’s the case, are they really different from Bernie Madoff?

Posted by JohnInVA | Report as abusive
 

The true scandal purportedly perpetuated was not by Aleyniko but by the executives of Goldman Sachs themselves. These teflon sycophants bilked taxpayers, under a Democratic Congress, no less, for billions via AIG. Aleyniko is just a small time economic patsy plucked by the FBI to be made an example of!

Posted by Aaron Johnson | Report as abusive
 

Of course, the programmer is innocent. This is just a case of a disgruntled employer & this is the way the decided to react to ruin his opportunity with his new employer. We keep hearing of the disgruntled employee, perhaps, this would be the first big case of the the disgruntled employer.

Posted by WallStreet Developer | Report as abusive
 

Great work! We desperately need people like Matt to uncover these types of activities. I manage my own money and reading what GS is doing hurts me. Read the white paper: http://www.themistrading.com/article_fil es/0000/0348/Toxic_Equity_Trading_on_Wal l_Street_12-17-08.pdf from themistrading and you’ll be amazed at how Wall Street is killing the markets.

Posted by ted wolf | Report as abusive
 

If you want to learn the secrets of program trading goto programtrading.com

I think Goldman was or is one of their institutional clients.

Posted by jorge | Report as abusive
 
 

The scary thing here is that Goldman stated that this software “could be used to manipulate prices.” Now, isn’t that as good as a confession? So now we know that Goldman manipulates prices?

Posted by Alexander | Report as abusive
 

Decimal Place Trading caused the recession of 2008
This recession was caused by the manipulation of stock prices on Wall Street through naked short-selling, flash trading, high-frequency trading, secret software, super-fast computers and what I feel was the main cause of this corruption: “Decimal Place Trading.” As I write this article today, much of this corruption is now slowly coming out through social media outlets such as Twitter and Facebook, along with bloggers on the internet, Yahoo bulletin boards, and the movie Stock Shock. The news media is also to blame for what has taken place in this country — including the near-collapse of Wall Street and the banking industry.
There are many things to point fingers at or place the blame on, and I can think of a few off-hand that I would like to cover — the first being Wall Street’s regulation changes. I am no expert — I am not even a writer — but decided to tell this story since the business news media was not telling it. These Wall Street regulation changes contributed to the aforementioned problems in many ways, with the first being the removal of fractions in stock pricing. On January 29, 2001, the New York Stock Exchange, or NYSE, went to four-decimal-place trading. On March 12, 2001, the National Association of Securities Dealers Automated Quotation, or NASDAQ, followed suit. This new rule had the best of intentions as we headed toward the computer and digital world, but over time it was manipulated and companies like Goldman Sachs figured out how to take advantage of the new system. I am not sure how it happened, whether it was lobbied for years or what — but along came the biggest mistake of all with the elimination of the uptick rule in July of 2007. This rule had been implemented after the great depression, and had been in place since 1938. How could the Securities and Exchange Commission, or SEC, abolish a rule that had been in place for close to 70 years, and had worked? Put these two changes together, and you get a simple equation: greed plus corruption equals recession.
Reports have been released on the web that Goldman Sachs made over 100 million dollars per day in 46 out of 64 trading days in Fiscal Year 2009, second quarter (April, May and June). Let me say that again. They made over 100 million dollars per day, and are still doing it as I write this letter today. But the question remains, how did they do it? There has been no report of this by any of the news media. How can this be? This corruption is 100 times the gravity of the Bernie Madoff story, and yet there has been no coverage by CNBC or Bloomberg News. Why? Goldman Sachs, upon Wall Street transitioning to fractions and the abolishment of the uptick rule, designed secret software and used this software to gain an advantage on every potential investor. Basically, Goldman Sachs became a Las Vegas poker dealer in New York City on Wall Street, turning profits on investors every trade with their super-fast computers and software.
Richard Keane August 26th, 2009 Revised version

 

Rick Aristottle Munariz of the Motley Fools is paid to mislead investors about Sirius XM Radio. He is part of a news media collusion lead by CNBC and their own Jim Cramer. Jim Cramer’s street.com web site is also hip deep into the collusion. Jim Cramer and his writers, especially Scott Moritz are all part of the scandal and it leads upward to CNBC/GE executives and Goldman Sachs. Thank god their is now an investigation taking place with Goldman Sachs. Goldman Sachs was investigated and 10 firms, including Goldman Sachs were fined $1.4 Billion dollars in 2003. Now the full blown investigation by Boston’s Chief Financial Regulator William Galvin will reveal the corruption of Goldman Sachs again and I can only hope that William Galvin will follow the money trail and check the bank accounts of Rick Aristottle Munariz of the Motley Fools along with Scott Moritz of the Street.com Just check these 2 writers banking accounts and the investigation will reveal that they are being paid off to write mis-leading stories about Sirius XM Radio. The money trail from these 2 writers will lead to >>> Motley Fools >>> Street.com >>> Jim Cramer >>> CNBC >>> GE / CNBC executives >>> NAB >>> Goldman Sachs.
It has all been a news media collusion along with the combination of Wall Street corruption by Goldman Sachs to destroy Sirius XM Radio inc. by naked short selling, flash trading, superfast computers, using secret software to manipulate the Sirius XM Stock price in decimal places the past few years since the Siri /XM merger was announce in Jan 2007. It was a pact agreed to by the news media and Goldman Sachs, which is why CNBC keeps reporting positive story after positive story about Goldman Sachs. All are into this collusion knee deep and this is why they will not report Goldman Sachs and their biggest scandal in the history of Wall Street.
Goldman Sachs got greedy. The scandal with Sirius XM Radio, worked so well with their secret software that was making them millions of dollars a day. Well, their Greed expanded into not just naked shorting & decimal place trading Sirius XM radio, but Goldman Sachs, next said , heck this secret software works so well, along with CNBC’s cover up lets do it to our competition the banking industry. Goldman Sachs next used these tactics on the banking industry in 2008 – 2009. They have been protected by CNBC by paying CNBC millions of dollars a month in advertising or shall we say paid protection.
Goldman Sachs greed almost ruined this country when they began using naked shorting and their secret software to attack the banks. It was their Greed of making millions using this software attacking Sirius XM Radio and when they expanded their scandal to the banking industry, they were now making over $100 million dollars a day. This is a fact, as Goldman Sachs made over $100 million dollars a day in 46 of 64 trading days last Quarter 2009 ( April , May, June 2009 ).
CNBC is part of the scandal, taking in million a months from Goldman Sachs for their silence. Why wouldn’t Goldman Sachs pay CNBC millions of month, that was nothing to them, since they are making over $100 million dollars a day. They helped CNBC try to ruin the competition ( Siri ) and now CNBC will help them ruin the other Banks. A true partnership by Goldman Sachs & CNBC.
The scandal lives on today, but thankfully the investigation by William Galvin will be expanded into the news media collusion of CNBC, Motley Fools & Street.com along with many other news media types.
Their Greed and goals have cost the average investors of the World hundreds of billions of dollars the past few years. In the end the truth is going to come out, but how does the people of the World hear the truth when the news media is part of the Scandal.
Well, a few years ago, CNBC & Goldman Sachs would have gotten away with it, but thank you http://www.Satwaves.com , http://www.twitter.com/stockshockmovie and the many social media outlets and bloggers out there. Thank you for helping bring the truth to the World. Each day we get closer and closer to the biggest scandal in the history of the United States. ( Written by Richard Keane – August 30th, 2009 )

 

White house calls me http://bit.ly/3KH6Es Wall Street crime about to be exposed

Richard Keane, narrator Stock Shock

http://www.twitter.com/stockshockmovie

http://www.stockshockmovie.com

Thanks

Richard

 

Hello,

Here is a press release that came out today Sept 2nd, 2009. It also has a few photos on it and a 12 second video of me.

please check out the link http://www.24-7pressrelease.com/press-re lease/white-house-curious-about-movie-st ock-shock-114735.php

Richard Keane, narrator Stock Shock

 

Truly that there is an incident like this….

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I agree with Alexander

 

I agree with Alexander

Posted by SingleNY | Report as abusive
 

I agree with Alexander
http://www.newyork-date.com

Posted by NYSingle | Report as abusive
 

Is there a government department responsible for auditing trading systems of this nature?

James
http://www.adaptivetradingsystems.com

Posted by jalsck | Report as abusive
 

This type of activities supports global recession. Definitely we need a system who will responsible for auditing suspicious activities in trading system.

Regards
http://www.quagnitia.com

Posted by Quagnitia | Report as abusive
 

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