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Goldman Managers Grilled in Code-Theft Trial

MANHATTAN (CN) - Two Goldman Sachs managing directors testified Wednesday in the federal trial of Sergey Aleynikov, a programmer accused of stealing the company's source code for high-frequency trading software. The software was developed so companies such as Goldman Sachs could profit by executing trades just fractions of a second faster than its competitors.

High-frequency trading "involves the extremely rapid execution of high volumes of trades in which the decisions to make those trades are determined by sophisticated computer programs that use complex mathematical formulas, known as algorithms, to make the trading decisions," according to the indictment.

Aleynikov's defense attorney Kevin Marino suggested during one cross-examination that the transactions happen so quickly that "millionths of a second can make a difference in some markets."

To keep a competitive advantage, Goldman Sachs keeps its computers with this software physically close to the stock market, in a practice known as "co-location," Goldman Managing Director Paul Walker testified.

Aleynikov, a former Goldman employee who helped develop the software, announced his resignation to accept higher-paying jobs twice in 2009, Managing Director Adam Schlesinger said.

Schlesinger testified that Goldman matched a competitor's offer the first time, but let Aleynikov go the second time, to a different company.

Teza Technologies, Aleynikov's new employer, denied that it ever asked Aleynikov to supply any of his former employer's intellectual property.

Aleynikov and his defense attorneys say he used only lines of the company's code that were open source and belonged to the public.

On June 5, 2009, his last day at Goldman Sachs, Aleynikov allegedly transferred Goldman Sachs code to a server in Germany, and took the code in a flash drive to Teza about a month later. He was arrested at Newark Airport the next day, according to the indictment.

Prosecutor Rebecca Rohr asked Goldman Sachs director Paul Walker which aspects of the code were meant to be kept secret from competitors.

"I would say all of them," replied Walker, prompting laughter in the courtroom.

The lines of code were so confidential, he said, that the company guarded access by physical security in the building and enlisted additional services of a company called the Information Security Group. Goldman Sachs also monitored firewalls to look for outbound communication, Walker said.

During cross-examination, defense attorney Marino suggested that several lines of the secret code came from freely available and public sources, some of which can be found in textbooks.

Walker acknowledged that it is possible that "in our 60 million lines of code," certain lines could be found in textbooks. But Walker added that Goldman Sachs policy was to segregate open source code, which belongs to the public, from modified, proprietary programming owned by the company.

Showing Walker a government exhibit of a code sample allegedly stolen by Aleynikov, Marino suggested that certain highlighted lines were open source code.

"It is possible that it may contain open source software," Walker acknowledged.

Often leaning into the microphone for emphasis, Marino suggested that his client only downloaded the Goldman code to separate the "wheat," the "naked open source software" that he used in designing the program, from the "chaff," the modified code belonging to the company.

Aleynikov wanted to "return to the public what belonged to the public," Marino said.

Walker rejected that as "almost impossible" in its difficulty, based on his experience "programming software for 30 years."

Walker acknowledged that certain open source programs operate on licenses mandating that programmers "re-contribute" any changes or modifications back to the public domain.

But Walker declined to say whether that could apply with the software Goldman Sachs developed; he said he did not have the legal background to offer an opinion.

During one recess, Marino asked presiding Judge Denise Cote whether he could ask witnesses about statements they made to the FBI before his client's indictment.

Marino suggested that Aleynikov was indicted based on statements an FBI agent made to a grand jury, which were based on hearsay statements from Goldman Sachs employees, who acted "with malice" against his client.

Goldman Sachs went directly to the government to get Aleynikov prosecuted criminally without ever trying to resolve the matter in civil court, Marino said.

Judge Cote replied that Marino made these arguments in a motion to dismiss before trial began, and could make the same arguments during cross-examination only if they fell under the scope of direct testimony.

Aleynikov is charged with theft of trade secrets, transporting stolen property in foreign commerce and unauthorized computer access. If convicted, he faces up to 25 years in prison.

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