(Bloomberg) — A Goldman Sachs Group Inc. managing director told a jury he began investigating possible theft of the companys computer code after being alerted to data transfers of reasonably substantial size.
We were pretty sure we had lost information and we wanted to know what we had lost, Mark Freeman testified during the trial of Sergey Aleynikov, the former Goldman Sachs programmer accused of stealing the firms high-frequency trading code.
Aleynikov, who has already spent almost a year in prison, is facing a jury for the second time because state prosecutors in Manhattan charged him after his federal conviction was thrown out. His lawyer argues that his actions, downloading computer code in June 2009 as he left for another job, are a civil matter between him and Goldman Sachs and not a crime.
Freeman, called by prosecutors to testify Friday, said he contacted other people at the bank after getting an e-mail alerting him to the data transfers, began a forensic analysis to determine what happened, and found a series of commands connected to Aleynikovs Goldman Sachs e-mail that, if executed, would have sent a group of files to a Gmail address associated with the programmer.
We concluded that we had lost source code to a repository outside the firm and that transfers may have been taking place for several months, said Freeman, a 26 1/2-year employee of Goldman Sachs.
Deal Rejected
Aleynikov, 45, is charged with unlawful use of secret scientific material and unlawful duplication of computer related material. If convicted, he faces as long as four years in prison.
Manhattan District Attorney Cyrus Vance Jr. claims Aleynikov stole the Goldman Sachs code and tried to cover his tracks when he left for a job that would have more than doubled his salary. The Russian-born programmer denies the charges and rejected an offer to plead guilty in exchange for not serving more time in jail.
Aleynikov was sentenced to eight years in prison after being convicted by a jury in Manhattan federal court in 2010. In 2012, the U.S. Court of Appeals in New York threw out the verdict, ruling that his actions werent a crime under federal law.
Flash Boys
Aleynikov, whose 2009 arrest served as an inspiration for author Michael Lewis best-selling book Flash Boys, was the first of a group to be charged by Vance with stealing intellectual property from financial firms. Aleynikov has said that most of what he took was open-source code that he didnt intend to hurt the bank. He contends in the trial that the bank wasnt hurt economically, so his actions arent a crime under state law.
Goldman Sachs partner Paul Walker, the firms co-head of technology, told the jury Friday that the firms high-frequency trading code is among its most valuable assets and is kept confidential because thats where all of our intellectual property about how we operate this business lives.
The company protects the code by securing its facilities, restricting access to developers and programmers, requiring employees to sign confidentiality agreements and hiring an outside security group to detect and prevent data leaks, Walker said.
Valuable Asset
The code provides the sum of our investment over decades in building a robust trading system and would be a valuable asset to anyone trying to replicate what Goldman Sachs had, and could allow competitors to make similar trades and reduce Goldmans profit and market share, Walker said.
The developer would have the answer in the back of the book, said Walker, a former physics researcher who joined Goldman Sachs in April 2002 after 2 1/2 years at JPMorgan Chase & Co.
Walker said New York-based Goldman Sachs conducted an internal investigation on June 30, 2009, after discovering that Aleynikov downloaded about 32 megabytes of code, and notified the FBI the next day.
Goldman Sachs never lost any portion of the code because of Aleynikov and its high-frequency trading platform operated without interruption in the month before his arrest, Walker said in response to questions from Kevin Marino, the programmers lawyer.
We concluded that a very valuable piece of computer code had been taken by an employee who left the firm, Walker said. We concluded that he had taken a substantial portion of the code for the platform.
Tarball
Adam Schlesinger, a former Goldman Sachs executive who now works as a managing director for JPMorgan, testified Thursday that he began probing after Freeman called him. He said he found a script of commands in Aleynikovs home directory that created a mass of files known as a tarball that essentially backed up Goldmans entire source code. Schlesinger said it appeared as if someone had attempted to cover their tracks by deleting their command history and backdating the script to make it seem as if it had been created years earlier.
At that point I had no knowledge that Mr. Aleynikov was involved, Schlesinger said. I figured there had to be a logical explanation for the transfer.
The case is New York v. Aleynikov, 04447-2012, New York State Supreme Court, New York County (Manhattan).
