The Only Goldman Sachs Employee Arrested In Connection With The Recession

By Robert Grimminck on Monday, January 11, 2016
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“Money, which is of very uncertain value, and sometimes has no value at all and even less.” —Thomas Carlyle, “Frederick the Great”

In A Nutshell

The Great Recession, as it’s become known, started in 2007 and lasted until 2008. It is considered one of the worst financial crises since the Great Depression. In many ways, investment banking firm Goldman Sachs contributed to the crisis. But the only person arrested in the aftermath of the crisis was a computer programmer from Goldman Sachs named Sergey Aleynikov. His crime? He supposedly stole from Goldman Sachs.

The Whole Bushel

The most recent recession in the US first started to take shape in August 2007, and there were three main causes of the crisis.

One of the biggest causes was the bursting of the subprime mortgage bubble. Another contributing factor to the crisis was the attitudes of banks; they were overvaluing stock and short selling. A third contributing factor to the crisis was the involvement of the United States government. It implemented new regulations that only made things worse when banks used the new rules to exploit the stock market.

One company that contributed to all three of the above listed offenses was Wall Street firm Goldman Sachs. Goldman was involved with a number of shady practices leading up to and during the crisis. This included helping the Greek government rig their books to hide their debt.

They also designed subprime mortgage securities to fail because they were betting that they would fail.

Finally, they were one of the firms abusing the new rules implemented by the US government through their high-frequency trading department. Needless to say, while Goldman Sachs was not the cause of the crisis, their hands are not clean. Yet, the only Goldman Sachs employee arrested in the wake of the recession was a computer programmer named Sergey Aleynikov.

Aleynikov had come to work in the high-frequency trading department at Goldman Sachs in 2007, just as the financial crisis was looming. In April 2009, Aleynikov got a job with a new high-frequency trading shop, but after accepting the job, he stayed on with Goldman Sachs for another six weeks until June 5.

Two days after leaving Goldman, Aleynikov was arrested by the FBI for theft. Goldman accused him of stealing open-source code through an online directory. The file he uploaded was 32 megabytes of code that was part of Goldman Sachs’s high-frequency trading system.

When he was arrested, neither Goldman Sachs nor the FBI were exactly sure of the significance of the code he supposedly stole—they just know he took coding from Goldman.

The problem was that only a few people understand the worlds of both coding and high-frequency trading. So when Aleynikov went to court in December 2010, the district attorney proved Aleynikov had worked at Goldman Sachs, that he left to go to a competitor, and that he did, indeed, upload code to an online hard drive.

His trial lasted 10 days. A jury, mostly made up of high school graduates, found him guilty. He was sentenced to eight years in prison.

The problem is that while he may have violated Goldman’s rules, Aleynikov didn’t break any laws. The code that he uploaded was open source, which by its nature, is not copyrighted. Secondly, what was uploaded to the directory wasn’t significant. It was just a gear in a gigantic machine. How valuable could 32 megabytes of code be to Goldman Sachs? He couldn’t reverse-engineer or build a copycat system from it.

Finally, when investigative reporter Michael Lewis asked a group of high-frequency computer system programmers (note: an actual jury of Aleynikov’s peers) about his actions, they all said his actions were perfectly normal for a programmer.

After being convicted, Aleynikov sat in prison for 11 months awaiting his appeal. During that time, he went bankrupt and his wife divorced him. He won his appeal, because the court ruled that no crime was committed and he was freed. However, he was charged again with the same crime in 2012. His lawyers argued that it was double jeopardy, but they lost in court.

The case was finally dismissed in July 2015 when the court concluded, for the second time, that no crime had taken place.

Show Me The Proof

Bloomberg: ‘Flash Boys’ Programmer in Goldman Case Prevails Second Time
The Economist: The origins of the financial crisis
Vanity Fair: Did Goldman Sachs Overstep in Criminally Charging Its Ex-Programmer?

  • Hillyard

    It figures, the asshats that almost destroyed the economy get bonuses, one guy takes some open source software and gets arrested.