U.S. Seeks to Shield Goldman Secrets

http://online.wsj.com/article/SB10001424052702303891804575576693537306332.html?mod=WSJ_hp_LEFTWhatsNewsCollection

	• OCTOBER 27, 2010
U.S. Seeks to Shield Goldman Secrets
	• By SCOTT PATTERSON
Goldman Sachs Group Inc. has always closely guarded the secrets of its  
lucrative high-speed trading system. Now the securities firm is  
getting a help from an unusual source: federal prosecutors.

Federal prosecutors in Manhattan this week asked a federal district  
judge to seal the courtroom at the forthcoming trial of a former  
Goldman computer programmer accused of stealing the firm's computer  
code. The move was a formal request to empty the courtroom of the  
general public when details of Goldman's trade secrets are being  
discussed. The trial is set to start to late November.
Prosecutors also asked that any documents related to Goldman's trading  
strategies remain under seal.

Such requests are common when proprietary corporate information could  
be exposed in a trial, lawyers say. This case is unusual in that it  
involves secrets about a potentially lucrative trading system, rather  
than, say, ingredients in a soda formula.

Sergey Aleynikov, 40 years old, was arrested by Federal Bureau of  
Investigation agents in Newark Liberty International Airport on July  
3, 2009, and charged with the theft of computer code behind Goldman's  
high-frequency trading platform. The programmer was indicted in  
February and has pleaded not guilty.

Motions filed this week by the government and the defense offer a  
window into arguments that will decide Mr. Aleynikov's fate.  
Prosecutors are expected to argue that his actions could have harmed  
Goldman Sachs. A spokesman for the bank declined to comment.

Lawyers for Mr. Aleynikov, whom the indictment alleges uploaded  
Goldman code to a server in Germany and then downloaded it to his home  
computers, are expected to contend that the code he took only  
represented a fraction of the broader strategy and couldn't be used to  
hurt Goldman's business, court documents suggest.
Earlier this year, Mr. Aleynikov's defense team sought details from  
the government and Goldman Sachs regarding the bank's high-frequency  
computer systems. The court denied those requests.

Lead defense attorney Kevin Marino, of the Chatham, N.J., law firm  
Marino, Tortorella & Boyle, argued in his motion this week that the  
defense requires access to information about Goldman's trading system  
to prove Mr. Aleynikov "could not have intended to injure Goldman" by  
taking the firm's trading code.

The bar for clearing a courtroom can be high, said Sandra McCallion, a  
lawyer specializing in trade-secret cases for the New York law firm  
Cohen & Gresser LLP. The government has to show that "this is  
something that is so secret that it will cause harm to [Goldman] if it  
were made public," she said.

The arrest of the Goldman programmer helped put high-frequency trading  
into the spotlight last year. The strategy, in which powerful  
computers buy and sell securities at ultrafast speeds, has proved  
lucrative for many traders.

The indictment said Goldman's high-frequency trading operation  
generated "many millions of dollars in profits per year."

The strategy also has come under heightened scrutiny amid concerns  
that some high-frequency traders were gaining unfair advantages in the  
market. The Securities and Exchange Commission has launched an in- 
depth study of issues surrounding high-speed trading and is  
considering several proposals to monitor it.

This year, regulators have focused on the role high-frequency traders  
played in the May 6 "flash crash," when some of the fast-moving firms  
stepped away from the market during the height of the turmoil.

Court documents filed by the government in July 2009, soon after Mr.  
Aleynikov's arrest, state that Goldman's strategies involve  
"sophisticated, high-speed and high-volume trades on various stock and  
commodities markets."

Prosecutors allege that Mr. Aleynikov transferred a substantial  
portion of that code to a computer server in Germany. He then  
downloaded the code to his personal laptop, which he allegedly brought  
to Chicago, where he had a meeting a firm that had hired him, start-up  
trading shop Teza Technologies LLC.

Teza became embroiled in its own legal battle following Mr.  
Aleynikov's arrest. Founder Mikhail "Misha" Malyshev and Teza  
employees were sued by their former employer, Chicago hedge fund  
Citadel LLC, for violating agreements not to work for a competitive  
firm. In mid-October 2009, a Chicago court granted sanctions against  
Teza.

The Teza case showed how details surrounding a trading strategy can  
emerge during the course of a trial, including disclosures that the  
Citadel high-frequency unit pulled in about $1 billion in 2008.

Write to Scott Patterson at [email protected]
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