Program trading is a difficult, but lucrative trade. The large trading houses have crafted proprietary systems to give them an edge, and fiercely protect that code. During 2010, when news broke that a former Goldman Sachs (NYSE: GS) programmer had stolen that code, this issue came to the forefront, and the case has finally reached conclusion.
Sergey Aleynikov, a 40-year-old former Goldman Sachs programmer, was found guilty by a federal jury in Manhattan of stealing proprietary source code from the bank’s high-frequency trading platform. He was convicted on two counts — theft of trade secrets and transportation of stolen property — and faces up to 10 years in prison. Mr. Aleynikov’s arrest in 2009 drew attention to a business that had been little known outside Wall Street — high-frequency trading, which uses complex computer algorithms to make lightning-fast trades to exploit tiny discrepancies in price. Such trading has become an increasingly important source of revenue for Wall Street firms and hedge funds, and those companies fiercely protect the code underpinning their trading strategies.
During the two-week trial, Judge Denise L. Cote closed the courtroom to the public several times to protect Goldman’s proprietary source code. Yet several details emerged about the firm’s high-frequency trading business, including that the unit accounted for about $300 million in revenue last year, which sounds astronomical, but actually accounts for less than 1 percent of Goldman’s total revenue of $45 billion.
As Aleynikov was being recruited away from Goldman by Teza Technologies, he uploaded source code to a server in Germany that allowed him to do an end around the company’s security systems. After discovering that he had stolen code, Goldman reported him to federal authorities. On the evening of July 3, 2009, six agents from the Federal Bureau of Investigation met Mr. Aleynikov as he landed at Newark International airport and arrested him.
Mr. Aleynikov remains free on bail but because he holds dual United States and Russian citizenship, the judge placed him under home confinement and electronic monitoring until his sentencing, which is set for March 18.
