Will Sergey cut a deal?

August 3, 2009

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.

But no matter what happens, Aleynikov’s arrest did serve one useful purpose: awakening the world to the potential danger of high-frequency trading.

I’m pretty certain that long after Aleynikov’s case is disposed of, we’ll still be talking about the potential danger of HFT causing a 1987-style market meltdown.

UPDATE: Here’s the filing for a continuance in the case.


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