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.

7 comments

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/

That sounds about right. Actually above reads a bit like the satire in the 7/17 update to my 7/15 post (but without the dialect and bad puns). This story still awfully quiet.

Absolutely agree with this. There is no case here. All programmers having code in many places because they work 24×7 and would like to have code available for modification in case of support or something brilliant coming to the mind to make changes in code until great idea still in mind.

Speaking about HFT that is for sure cause a 1987-style market meltdown. I think this kind of business should be prohibited. Market is not a CASINO. Market is the place where people investing money for life. This kind of business can kill good company with low volume of trading in few hours. Making money on market manipulation is a crime. If Market makers want to play HFT game, they should open new “casino market” in Las Vegas and play against each other. Make IAG.CM, C.CM, GM.CM, LEH.CM etc. (CM stays for “casino market exchange”) – fake stocks (like casino chips) and compete with each other to find out who is the best FHT black box trader. I will call this “HFT Poker Game”.

Any way my opinion is: Aleynikov case should be closed and new one should be opened against all HFT players.

Posted by Serguei Avramic | Report as abusive

[...] Heavens for the NY Post’s Mark DeCambre, Reuters’ Matt Goldstein [3], Asia Times’ Julian Delasantellis [4] and a few other intrepid souls who are keeping this [...]

Your coverage has been fantastic. Thanks for the update.

Posted by Mike | Report as abusive

Sergey Aleynikov is BANNED from Google…

Posted by Dr. Flash | Report as abusive

I tried to send the email to: goldstein@thomsonreuters.com , but it said access denied.

So it goes here:

Hi Matthew

I have a question about the article “French judges probe firms over
vaccinations -source” published in reuters in february 2008, about an
investigation against the Sanofi Pasteur and Merk laboratories over
the non-disclosure of the side-effects of the vaccine against
heppatitte B. Congratulations for publishing quite an important
information.

How was the development of the case? I haven’t seen anything in reuter
since then.

http://www.reuters.com/article/rbssHealt hcareNews/idUSL0173467120080201

[...] Will Sergey Cut a Deal? [Reuters Blogs] Sponsored Topics: Federal Bureau of Investigation – Lawyer – Indictment – FBI – Magistrate Published Tuesday, August 04, 2009 5:42 PM [...]

The dangers of high-frequency trading? Garbage. As someone who was one of the pioneers of HFT, I think you bought the BS that Goldman’s lawyers put out. High-frequency trading is just a tagline for trading, pure and simple. The only difference is that the algorithms must be honest since they encode behavior: encoding unethical trading logic would be found in discovery and be far more damaging than one or two traders admitting to wrongdoing.

The issues with high-frequency trading are merely issues with how trading itself is done; HFT just does this more quickly and documents the gaming which has always been done. Further, HFT is why your retirement money is paying less in fees than it ever has. HFT is also a threat to the hegemony of the big banks — which is why you don’t hear them defending it. If anything, most big banks wish HFT would go away so they could go back to making fat margins on poorly-executed orders.

Posted by D Rock | Report as abusive

You can see HTF affected stocks in day trading, quite funny really. Buy it up in/before the last 3 hours of the day short it 5-8% and go home richer cause the machine is manipulating the price and the pattern is so obvious.

Posted by Wes | Report as abusive