Court Reverses Conviction Of Former Goldman Sachs Employee In Source-Code Theft Case

An appeals court has overturned the conviction of a former Goldman Sachs Group programmer for stealing source code used for the company’s high-frequency trading system.

The U.S. Court of Appeals in New York ruled Wednesday that Sergey Aleynikov did not violate the laws prosecutors charged him with in 2009. According to the court (PDF), the two laws used to prosecute Aleynikov -- the Economic Espionage Act (EEA) and the National Stolen Property Act (NSPA) -- did not apply to his case.

Aleynikov left Goldman Sachs in 2009 for a start-up firm called Teza Technologies, which was planning to build its own high-frequency trading system. Before departing, he uploaded a copy of Goldman's source code as well as code "for a substantial part of the infrastructure, and some of the algorithms and market data connectivity programs" to a server located in Germany, the appellate court notes. He then downloaded the code to his own personal computer and was later arrested by the FBI.

The indictment charged Aleynikov with violating the EEA by downloading a trade secret "related to or included in a product that is produced for or placed in interstate or foreign commerce," as well as violating NSPA by attempting to "transport, transmit or transfer in interstate or foreign commerce any goods, wares, merchandise, securities or money…knowing the same to have been stolen, converted or taken by fraud."

In the opinion issued Wednesday, the court found that source code could not be considered a tangible object under the NSPA, and therefore could not be deemed a good that was stolen under the law. In the case of the EEA, the court found that because the high-frequency trading system was not designed to enter or pass in commerce -- or to make something that does -- Aleynikov's theft of "source code relating to that system is not an offense under EEA."

A spokesperson for the office U.S. Attorney Office for the Southern District of New York declined to comment on the ruling or say what its next move in the case may be.

Appellate court Judge Guido Calabresi concurred with his colleagues in an accompanying opinion, but added that he found it hard to believe Congress meant to exclude the type of behavior at the heart of the case.

"I am not dissenting because I recognize the strength of the majority's analysis of the text and the legislative history, and because, as the majority says, ambiguous criminal statutes must be read in favor of the defendant," he writes. "Nevertheless, while concurring, I wish to express the hope that Congress will return to the issue and state, in appropriate language, what I believe they meant to make criminal in the EEA."

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