Aleynikov goes free

By Felix Salmon
February 17, 2012
Choire Sicha, as being very happy that Sergey Aleynikov is once again a free man.

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Count me in, with Choire Sicha, as being very happy that Sergey Aleynikov is once again a free man. To cut a long story short, Aleynikov used to work in high-frequency trading for Goldman Sachs, earning $400,000 a year. He then got offered a job in Chicago, earning three times that amount. So he accepted the new job. On his last day at Goldman, he uploaded to an external server various bits of code that he had worked with at Goldman. He claimed that the code was benign open-source material; Goldman claimed that it could be used to “manipulate markets”.

Goldman’s claim backfired in one respect, in that it sparked a thousand semi-informed articles about high-frequency trading and how dangerous it is: articles which did Goldman’s reputation no good at all.

On the other hand, the claim did have its chief intended effect — it got U.S. authorities extremely excited, to the point at which they charged Aleynikov with criminal activity under the Economic Espionage Act.

Now the EEA was designed — and was initially used — to prosecute very different behavior, chiefly employees at defense contractors taking top-secret information and giving it straight to the Chinese government. The kind of thing which can absolutely be considered espionage.

The secrets at defense contractors, of course, are secret for reasons of national security. The secrets at investment banks and hedge funds, by contrast, are secret purely for reasons of profit: they reckon that if they have some clever algorithm which nobody else has, then that makes it easier for them to profit from it. Which is why it was always a stretch for the government to use the EEA to prosecute Aleynikov — indeed, it is why it was always a stretch for Aleynikov to be criminally prosecuted at all. Goldman could have brought a civil case against him, but instead they got their wholly-owned subsidiary, the U.S. government, to come down on him so hard that he ended up with an eight-year sentence. Violent felons frequently get less.

The forthcoming decision from the Second Circuit is likely to be a doozy; I’m told that the judges shredded the prosecutors during the oral hearing. And certainly their decision to enter a judgment of acquittal, rather than any kind of retrial, is a strong indication that they handed down this order with extreme prejudice against prosecutorial overreach.

Is it the government’s job to expend enormous prosecutorial resources protecting Goldman Sachs from competition? The Second Circuit certainly doesn’t seem to think so, and neither do I. Aleynikov’s actions were certainly stupid, and quite possibly illegal. But the way that Goldman managed to sic New York prosecutors on him bearing the sledgehammer of the EEA was far from edifying. And I’m glad that both Goldman and the Manhattan U.S. Attorney are surely feeling very chastened right now.

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32 comments so far

How about obtaining a copy of the oral argument audio from the court and posting it here so we don’t have to? Sounds like it would be entertaining.

Posted by guanix | Report as abusive

As a tech guy, I have to ask the question: Do you know that “they are feeling very chastened?” Or do they view it as a failure of that particular case, or judge?

Posted by Curmudgeon | Report as abusive

I saw one article which stated the key was that GS said the code was for internal use, so the theft didn’t trigger the “interstate commerce” clause in the law. If so, the decision is a half-win, since it doesn’t invalidate the overreach.

Do another post when the decision is released; there should be some good meat in there.

The open source defense always seemed a bit sketchy to me. I won’t help the prosecutors by saying why. In any case, congrats to Aleynikov for finally receiving justice.

Posted by AngryInCali | Report as abusive

‘I saw one article which stated the key was that GS said the code was for internal use, so the theft didn’t trigger the “interstate commerce” clause in the law.’

I saw that, too. But if that’s the case, how could the law be used against national security workers sending secrets straight to China?

Posted by samadamsthedog | Report as abusive

To answer samadamsthedg’s question; because anyone sending the secrets to China would have to use the “instrumentalities of interstate commerce” to do so. In other words they would have to use the phone, mail, internet etc. Or they would have to travel interstate to physically bring the secrets there.

Posted by chris9059 | Report as abusive

Now, can Aleynikov get proper compensation for the ordeal ?

Posted by Frwip | Report as abusive

Curmudgeon, It wouldn’t be a “particular” judge, because there were three on the panel, and no sign of dissent. All three, Jacobs, Calabresiu, and Pooler, are on board here.

If they have any sense, they are feeling chastened.

Posted by HansPragma | Report as abusive



Posted by crocodilechuck | Report as abusive

samadamsthedog, Wikipedia says there are two sections of the law, one which relates to thefts which benefit a foreign power, the other for thefts which harm the owner.

Also, the law doesn’t authorize private civil action, so I am not sure what remedies were available to GS in this case under other laws. And the law doesn’t provide for fines in the case of trade secret theft (but it does for the espionage violations), only imprisonment. Weird.

Posted by AngryInCali | Report as abusive

Frankly it’s scary how Goldman was able to marshall government resources in this way and so quickly. It speaks volumes that the DOJ expended the resources here instead of going after the types of mortgage fraud firms like Goldman are accused of taking part in or aiding.

Posted by Sechel | Report as abusive

Sechel, I noticed that at the time. Of course, I don’t suppose Aleynikov makes large campaign donations, and at the time that seemed the most likely explanation.

Posted by Acharn | Report as abusive

to AngryinCali: Goldman has old-fashioned breach-of-contract remedies available to it in civil (state) contexts. According to the prosecution, anyway, he had signed confidentiality agreements as a condition of employment. I don’t doubt that he did — that would be standard operating procedure these days.

The point here is that not every breach of contrract should be treated as a crime, much less a federal offense.

Posted by HansPragma | Report as abusive

AngryInCali, I strongly doubt that what he was uploading was “open source”.

Anyway, I suspect the judges found 8 years in a federal prison for stealing some IPR to be unjustified but we should be clear about the “justice” being trumpeted here, the guy was a thief.

Posted by Danny_Black | Report as abusive

Danny, that’s why it’s justice. Even unpopular, nasty and crooked people deserve it. The guy should have been prosecuted as a thief, not as a spy.

Posted by SelenesMom | Report as abusive

Good that the judges gave them a harsh tongue lashing, but unless they get disbarred or have their names splashed across the front page of a newspaper, or have reporters asking them lots of tough questions. How about having every judge in the state basically question these prosecutor’s motives for the next ten years, so they have to fight an uphill battle . Put their feet to the fire, have them lose their jobs. In general terms, I think we are past where “harsh tongue lashings” are sufficient. Sooner or later, there has to be consequences.

Posted by river4 | Report as abusive

SelenesMom, I agree but the tone is yet again that some “innocent” person is being persecuted.

Posted by Danny_Black | Report as abusive

Also did Goldmans claim the code could be used to “manipulate markets” or did the prosecutors say so? Because the Bloomberg article describing the case originally certainly made it seem like the latter

Posted by Danny_Black | Report as abusive

Question: is it plausible that someone could have sought to download or transfer open source material, and as an accidental byproduct of that effort downloaded or transferred other, proprietary, information with which the open source stuff was, so to speak, intertwined?

I ask because looking over some of the documents in the case, it does appear that the defense made various arguments about the intent necessary to satisfy the criminal statute.

I also ask because I know zip about programming.

Would appreciate help.


Posted by Christofurio | Report as abusive

@Christofurio, the short answer is yes, that is certainly possible. The long answer is that many companies start with open source software, then add their own proprietary code to it. If they redistribute, they are typically required by the applicable open source license to include their code with it, but many companies use it entirely internally.

I’m oversimplifying here, and not passing any opinion on what happened in this case, but the end result that many users of open source software have no intention of redistributing, and may make proprietary additions without good documentation on how to distinguish between the two. It’s not good programming practice, but I would guess that this occurs often.

Posted by Curmudgeon | Report as abusive

Unless Goldman is willing to describe the code that was uploaded, I wouldn’t accept their claim that it was not open source code. Are we supposed to accept whatever they claim as truth? That didn’t work well for many of their “clients”.

Aleynikov said it was open source code, so unless Goldman wants to prove otherwise, they have no case. This isn’t a national security case where they won’t disclose what was taken, they are claiming injury and they should have to prove it. Otherwise, it’s just a wealthy organization being able to buy the power of the government.

Posted by KenG_CA | Report as abusive

KenG_CA, what clients did they lie to?

Also if it was purely open-source why does he need his own copy? If he made material modifications then that is his companies and he was planning to steal it in order to give him a head start at his new company.

As for buying the power of the government, when you report a robbery are you “buying” the power of the government? Or do you think they should tell you to go sort it out in the civil courts?

Posted by Danny_Black | Report as abusive

Also not at all obvious that GS were the geniuses that came up with the idea of this type of prosecution.

Posted by Danny_Black | Report as abusive

goldman is truly invincible.

Posted by cnhedge | Report as abusive

Some open source licenses require you to provide modifications you make to the original source back to the public. It’s possible he didn’t finish doing that, and didn’t expect Goldman to follow though on posting the code.

So does the government prosecute with such zeal every complaint made by private citizens? I think not. Also, you usually have to provide evidence that what was taken was of material value. My point is that the government shouldn’t just take Goldman’s word that they were wronged, without providing evidence. Is there any public record of the code in question? The engineer’s claim that the code was open source could be very easily verified or debunked.

If the engineer violated his agreement by taking code with him, it’s a civil case. The government turned it into a criminal case, and tried to use statutes that were not applicable.

Posted by KenG_CA | Report as abusive

KenG_CA, not a developer so am quite possibly talking rubbish but from recollection only one licence – GPL – requires that if you redistribute the programe in executeable form then you have to give the code too and most commercial organisations prevent their developers even looking at said code in case they “contaminate” the commercial code, let alone embed that code for exactly this reason. It is exactly because of that I don’t believe he was posting open-source code.

I haven’t seen any evidence that the government simply took GS word for it and unfortunately we don’t have the reason the conviction was overturned but the way it reads it is over the applicability of the particular law that the prosecutor chose to use.

Posted by Danny_Black | Report as abusive

@Danny, any license that is recognized as open source by the Open Source Initiative requires that any redistribution include in source form any additional code that is statically linked to the open source (the definition of statically linked is fuzzy, and to my knowledge has never been tested in court). Last I checked, there were almost 60 such licenses.

Software groups that intend to redistribute (ie, software vendors, such as those I have worked for) typically do a very good job at keeping open source separate from proprietary code.

In my experience, many organizations that use open source internally only, without intending to redistribute, don’t do a very good job of this. In fact, sometimes individual developers bring in open source code without telling anyone in order to get a head start on a development effort.

I have no knowledge or opinion of what might have happened at GS. I do find it difficult to believe that Aleynikov would have taken it upon himself to return open source code used in his job back to the community. Sometimes, however, developers think of code they have written as “theirs”, to use either as a part of their demonstrated expertise, or to reuse in future projects.

Posted by Curmudgeon | Report as abusive

Curmudgeon, I defer to your greater expertise on the matter….

Posted by Danny_Black | Report as abusive

Danny, I wasn’t criticizing. In giving more thought to who owns the code they write, it’s pretty clear in law that your employer does, but I can easily see someone saying that they want copies to demonstrate their ability or experience to future employers. I developed a fledgling commercial software product as a university professor. It ultimately failed, but if it succeeded, it might have been reasonable for my university to claim both credit and profit.

You are/were in finance. If you were a salesman, you might think that you had some level of right to your client list, which you developed and succeeded with over a period of years. Your employer likely thinks it owns your client list, and you have no rights to it after you leave.

In one instance I was at a software company where an employee quit and attempted to download an entire product source tree onto a CD before leaving. That was pretty clearly criminal theft. What if he had taken only the code he had written? It is still theft, but you would have difficulty demonstrating criminal intent.

Posted by Curmudgeon | Report as abusive

Curmudgeon, I was simply expressing that fact as a complete non-expert talking to someone who is in that field you would almost certainly know better than me.

I wasn’t a salesman but the value that salesman has is his/her relationships not the actual names – which are typically the same people the company he is going to are already selling to. In this case, judging by his salary bracket, the guy was a coder not a quant or a developer of the algos themselves. As such what he could take with him in his head was some of the pitfalls or shortcuts that the new company could avoid or take in building a similar system and that experience would be his to give. However, I doubt writing fast market data handler code is worth 1.2million USD and debugged reading to go code is likely to be more likely what they were paying for.

Posted by Danny_Black | Report as abusive

Danny, you may be right about that. While in general I know what coders make around the US, I simply have no feel about what happens in the finance industry. And while I would love to get a consulting/employment offer at three times my current income, I would be wondering who I would have to kill.

Posted by Curmudgeon | Report as abusive

Felix – I share at least some of your concern about overreacting here, but your characterization of the Economic Espionage Act as being intended to apply only to stealing secrets that affect national security omits an important part of that law. Sure, there is one part that addresses the of trade secrets for the benefit of states, state actors, and state enterprises. But there’s another, completely separate part of that law that criminalizes theft of trade secrets for economic advantage – the very sort of conduct you’re saying happened here. The prosecutors here may have overreached in attempting to pin such a charge on Aleynikov, but that law has been on the books for more than a decade, and many states also have criminal sanctions for trade secret theft as well. If there is a flaw with this case, it’s not that the EEA was never meant to punish solely economic crimes. Clearly it was. One can, of course, doubt the wisdom of criminalizing that behavior is a good idea, and take issue with prosecutors for charging under this law in this particular case, but as a general matter, that’s what US law says.

Posted by PaulaProduct | Report as abusive

The court actually issued its opinion in this matter on April 11:

Jacobs said that the language of the statute refers to products that have been “produced for or placed in interstate or foreign commerce….”. This, then, includes two sorts of product, both with a limited meaning, those that have “already been introduced into [placed in] the stream of commerce” on the one hand and on the other hand to those that “are still being developed or readied” [produced for] such placement. The words evoke two distinct sets of products with a sequential relationship to one another, which satisfies well-established rules of statutory construction.

Aleynikov’s work was specifically in the development of “infrastructure programs that facilitate the flow of information throughout the trading system and monitor the system’s performance.” That trading system was created for the sake of engaging in commerce without regard to state or national lines. But the infrastructure of that system does not thereby satisfy the language “produced for or placed in….”

Posted by Christofurio | Report as abusive
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