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Monday, May 27, 2024 | Back issues
Courthouse News Service Courthouse News Service

Programmer Still Under Fire for Goldman Tech

(CN) - A programmer who escaped criminal charges based on highly profitable software code stolen from Goldman Sachs must face various civil claims, a federal judge ruled.

Just before resigning from Goldman, Sachs & Co. in 2009, Sergey Aleynikov downloaded hundreds of thousands of lines of high-frequency trading code.

The code, considered a lucrative trade secret, lets major banks place electronic trades millionths of seconds faster than their competitors. Aleynikov had taken a new job with Chicago-based Teza Technologies, but that company has maintained it would not have allowed Aleynikov to use his former employer's intellectual property.

Upon learning of Aleynikov's alleged breach, Goldman Sachs executives had FBI Agent Michael McSwain, a Goldman Sachs shareholder, arrest Aleynikov.

Though prosecutors argued that the agent's negligible number of shares ruled out a conflict of interest, U.S. District Judge Denise Cote refused to let the evidence be heard at trial.

A jury threw out Aleynikov's defense that he intended to extract publicly owned open source code, convicting him of theft of trade secrets and transportation of stolen property in interstate commerce in violation of the Electronic Espionage and National Stolen Property Acts.

Those counts led two an eight-year sentence, but the 2nd Circuit reversed the convictions in February 2012, finding that the charges were meant for tangible "goods," not software code.

After Aleynikov was acquitted on both counts months later, he filed a 16-page federal complaint in New Jersey, demanding that Goldman Sachs fund his legal defense as the case heads to trial.

The company and its partnership then filed four counterclaims against Aleynikov, alleging breach of contract, misappropriation of trade secrets and conversion under state law. It also sought a judgment finding it not liable for malicious prosecution.

U.S. District Judge Kevin McNulty refused to dismiss the counterclaims Tuesday.

"There may be valid arguments that counts 2 and 3, tort claims, should be subject to a three-year statute of limitations even though they may arise from a contractual relationship," McNulty wrote. "At this stage, however, I cannot dismiss count 2 or count 3 unless Aleynikov has excluded the possibility that it could be treated as a contract claim."

Goldman Sachs Group may assert claims as its parent's assignee, the ruling states.

"Goldman alleges that Aleynikov acted without authorization in copying the stolen technology, that he exercised 'dominion, control, and the right of ownership over the files and data, in derogation and defiance of the superior possessory rights of GS Group,' and that Goldman has suffered damages as a result of the conversion," McNulty wrote. "That is enough; the motion to dismiss is denied as to the conversion claim."

The judge also declined to dismiss the request for declaratory judgment.

"I tend to agree with Aleynikov that tort liability is not ideally suited to the declaratory judgment remedy, and that litigation of a malicious prosecution claim might be best left until such time as Aleynikov may assert it," McNulty wrote. "I see no clear limitation on the scope of the Declaratory Judgment Act, however, that would permit me to dismiss count 4 at this stage."

Editor's Note: The original version of this article improperly stated that Aleynikov downloaded the code for his new employer, Teza Technologies. That company has always maintained that it does not allow employees to use intellectual property from their previous places of work. Courthouse News regrets the error.

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