Saturday, February 13, 2010

The Puzzling Prosecution of Sergey Aleynikov

On Thursday, February 11, 2010, the U.S. Attorney's Office in Manhattan announced the indictment of Sergey Aleynikov, a former employee of Goldman Sachs & Co., for allegedly stealing Goldman computer code used in high speed stock market trading. Aleynikov was accused of making an unauthorized transfer of proprietary trading software on the last day of his employment at Goldman, apparently with the idea that it could help him develop a high speed stock trading platform at another firm where he was shortly to begin working.

We don't want to prejudge Aleynikov. A judicial process is motion whereby his guilt or innocence will be established. Let's assume, hypothetically and for the purposes of discussion, that he engaged in the conduct alleged and that this conduct was criminal.

We have the United States government pursuing a former Goldman employee for supposedly stealing computer software in order to advance his career at a Goldman competitor. Goldman is one of the most profitable and powerful banks in the world. Its multiple billions of dollars of profits would allow it to pursue Aleynikov around the globe, sue him in any court of any nation, and seek to prohibit him from using the stolen computer code. To the extent that he or any firm that employed him improperly used Goldman's code, he and that employer could be held liable for damages and other monetary relief. If their conduct was particularly reprehensible, a federal court in the United States might order them to pay punitive damages to Goldman.

What is the public interest in the federal government trying to vindicate the intellectual property rights of a very large bank that is fully capable of hiring legions of lawyers to protect itself? With massive amounts of investment losses to public investors from the mortgage and credit crises of 2007-08, and the various collateral morasses, there is plenty of grist for the prosecutorial mill. Prosecuting white collar crimes takes a lot of resources, and the U.S. Attorney's Office in Manhattan isn't overflowing with personnel. The taxpayers have already spent trillions of dollars on bailouts and stimulus programs to deal with Wall Street's mistakes. It takes a great deal of highly refined reasoning to conclude that amidst the worst economic crisis since 1930s, taxpayer dollars are appropriately spent on protecting Goldman Sachs from one of its departing employees.

Federal prosecutors do not pursue every potential crime that comes to their attention. A former governor of New York who allegedly paid a call girl to transport herself across state lines in order to meet him for a liaison arguably had a federal criminal problem. But he evidently will not be prosecuted--and, frankly, we would not contend that he should be.

If Aleynikov is convicted and punished after legal proceedings conducted in accordance with law, it would be difficult to muster sympathy for him. He appears to be a highly intelligent individual who either did or should have understood the significance of his conduct, whatever it turns out to have been. Sympathy should go to the American taxpayer, who now must pay for a government prosecution that will do little or nothing to protect beleaguered individual investors, punish those persons responsible for the 2007-08 financial crisis, help the unemployed, or assist those without health insurance. Granted, the cost to the government of this prosecution will probably run in the hundreds of thousands of dollars, or a few million at the most. But consider the impact if the same dollars were spent prosecuting and convicting someone who knowingly foisted crappy mortgages onto investors in mortgage-backed investments? Cleaning up the mortgage-backed securities and derivatives markets could have billions of dollars of impact, much or most of which would flow to investors. That would be in the public interest.

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