Ex-Goldman Sachs Programmer’s Conviction Upheld in New York

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(Bloomberg) -- Former Goldman Sachs Group Inc. programmer Sergey Aleynikov’s legal roller-coaster ride may finally be over as New York’s top court upheld his conviction for stealing the bank’s computer code for its high-frequency trading platform.

The ruling, based in part on violations of a 1967 law that bans the theft of "secret scientific material," follows a series of convictions, reversals and acquittals in federal and state courts as prosecutors pursued the case to set an example for programmers in the financial industry.

“Unlawful appropriation of intellectual property is a crime,” Manhattan District Attorney Cyrus Vance said in a statement after the appeals court’s unanimous ruling.

Aleynikov’s saga helped inspire "Flash Boys," Michael Lewis’s book about high-frequency trading, and the case was being closely watched by financial firms that are relying more heavily on computer-driven trading strategies and the programmers they are hiring to implement them.

While he faces as many as four years in prison, prosecutors have said they aren’t seeking to incarcerate him further. Aleynikov served a year of an eight-year prison sentence before a federal appeals court threw out that conviction. He was charged by state prosecutors in August 2012.

‘Outmoded’ Statute

In its 28-page decision, the appeals court said Thursday that a person who uploads proprietary source code to a computer server is guilty of making unlawful use of secret scientific material -- an issue that had divided lower-court judges. Aleynikov’s lawyer had argued the statute was "outmoded" and said it couldn’t apply to electronic copies.

“Ideas begin in the mind. By its very nature, an idea, be it a symphony or computer source code, begins as intangible property,” the court said. “However, the medium upon which an idea is stored is generally physical, whether it is represented on a computer hard drive, vinyl record or compact disc.”

The appeals court said the lower court also incorrectly concluded that Aleynikov hadn’t made a "tangible" copy of the source code because it didn’t exist on a medium such as paper where it could be "touched." The panel said the law was enacted to ensure that someone who makes a copy of secret scientific material can still be subject to criminal prosecution even though the original hadn’t been physically taken.

Aleynikov’s lawyer Kevin Marino said he will ask that the conviction be set aside, arguing the court’s conclusion that computer source code was something "tangible" was in conflict with the reasoning which prosecutors used at trial. Marino also said he’ll also argue Aleynikov can’t be tried and convicted twice for the same crime.

Ex-Susquehanna Engineer Avoids Prison Term in Code ‘Heist’

Aleynikov’s federal case was one of the first by the U.S. to prosecute someone for violating the Economic Espionage Act and the Interstate Transportation of Stolen Property Act. Prosecutors said that on his last day of work at New York-based Goldman Sachs in June 2009, Aleynikov uploaded hundreds of thousands of lines of source code.

According to prosecutors, Aleynikov circumvented Goldman Sachs’s security, sent the code to a server in Germany, compressed and encrypted it, and took it with him to a meeting with new employers at Chicago-based Teza Technologies. Prosecutors argued Aleynikov wanted it as a “cheat sheet” to start a trading system at his new job.

While Aleynikov argued there wasn’t enough evidence to show he’d made "a tangible reproduction" of Goldman’s source code, he didn’t dispute it constituted "secret scientific material," the appeals court said.

Aleynikov Prosecutor to Appeal Second Verdict Reversal

He was convicted in Manhattan federal court in 2010. In 2012, the U.S. Court of Appeals in New York reversed the conviction. Aleynikov was rearrested in August 2012 on state charges. In 2015, he was convicted of one count of unlawfully using secret scientific material, but the judge threw out the verdict and acquitted him. Vance’s office appealed and the conviction was reinstated by an intermediate appellate court. Now, the top court upheld that decision.

Thursday’s ruling upholding the concept that even computer code is tangible may embolden prosecutors to go after more employees who steal computer code. Vance has brought cases against at least five men charged with theft of intellectual property from financial firms.

“This ruling should certainly clear up any questions that prosecutors have about the reach of the statute,” said Bennett L. Gershman, a professor at Pace University’s Elisabeth Haub School of Law in White Plains. “This 50-year-old statute is now being used in the high-tech digital age and it seems able to accommodate not only film and photography, but technology that involves the downloading of computer source code."

©2018 Bloomberg L.P.

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