The fact that Goldman Sachs (NYSE: GS) has a competitive advantage is no secret. The firm has flourished while many have failed. While most will point to the people inside Goldman as the reason the firm has done so well, the importance of it’s technology cannot be overlooked. Goldman is said to have the best in class proprietary systems, and goes to great measures to protect these codes and systems.
Recently, this issue became a headline store, as a former computer programmer Sergey Aleynikov has been accused of stealing trading software from the bank. Prosecutors are arguing that the courtroom should be closed to the public. Mr. Aleynikov had allegedly uploaded Goldman code to a server in Germany and then downloaded it to his home computers.
Lawyers for Mr. Aleynikov are expected to contend that the code he took only represented a fraction of the broader strategy and couldn’t be used to hurt Goldman’s business, court documents suggest. He was arrested by Federal Bureau of Investigation agents in Newark Liberty International Airport on July 3, 2009, and charged with the theft of computer code behind Goldman’s high-frequency trading platform. The programmer was indicted in February and has pleaded not guilty.
High frequency trading is a system where powerful computers buy and sell securities at ultrafast speeds, and has proved to be very lucrative for many traders. Tying this in to more recent events, regulators have said that high frequency traders played a role in the May 6 “Flash Crash”, which sent the markets tumbling as thousands of trades piled on pushing prices down at an extraordinary rate.
The incident has spiraled quickly and extended as well – prosecuters allege that after Aleynikov transferred the code to the server in Germany he downloaded the code to his personal laptop, and brought to Chicago where he had a meeting with a firm that had hired him, start-up trading shop Teza Technologies LLC. Teza soon after became embroiled in its own legal battle. Founder Mikhail “Misha” Malyshev and Teza employees were sued by their former employer, Chicago hedge fund Citadel LLC, for violating agreements not to work for a competitive firm. In mid-October 2009, a Chicago court granted sanctions against Teza.
