- Pre-Market Indications

Sunday, July 12, 2009

Sergey Aleynikov & The Goldman Code

Sergey Aleynikov

It is often a difficult task to make finance seem sexy and interesting, but there's a financial story now unraveling that effortlessly rivals the best James Bond or Jason Bourne novel.

Sergey Aleynikov, a former vice president at Goldman Sachs, was arrested at the airport in Newark, N.J., on July 3, about a month after he left the globe-spanning investment bank. At Goldman, Sergey Aleynikov, a competitive ballroom dancer, computer programmer, and Russian emigrant, had been in charge of the development of a "distributed real-time co-located high-frequency trading (HFT) platform," according to his LinkedIn profile.

The platform, according to informed speculation, is Goldman's "secret sauce." It's a highly sophisticated piece of code that absorbs market data and, within microseconds, makes trades based on that data. It's basically a black box of financial Kryptonite. According to numbers released by the New York Stock Exchange, Goldman dominates the realm of automated trading, and it is likely due in no small part to this platform.

And according to federal charges, Aleynikov stole Goldman's black box, uploaded it to a German server, and then tried to hide his trail, wiping the record of his keystrokes. Goldman's network stored a backup, so the company was able to check it after alarm bells were triggered by Aleynikov's 32-megabyte upload.

Reuters's Matt Goldstein broke the story on Sunday, a couple days after Aleynikov's arrest. Aleynikov professes his innocence, saying he had intended only to copy and store "open source" files, but unintentionally uploaded sensitive trade secrets as well.

Of course, had his actions gone unnoticed, Aleynikov would have been sitting on 32 megabytes of data worth potentially hundreds of millions of dollars. The federal complaint notes only that Goldman had spent "millions" to develop the program and that it generated "many millions of dollars of profits per year" for the firm. (The complaint refers to the bank only as a New York-based "Financial Institution," but corroborating evidence, and in particular Aleynikov's employment history, makes it pretty clear that Goldman is the bank in question.) A poll over at Zero Hedge, a blog popular among financial insiders, speculates that the program was likely worth over $400 million.

As if this wasn't enough corporate intrigue, Aleynikov was set to start work at a new job in Chicago, one that paid him triple his $400,000 a year Goldman salary. The new company is one that "intended to engage in high-volume automated trading," which of course raises the question of whether Aleynikov wanted to ingratiate himself with his new bosses by offering them a prized welcoming gift.

Watch this space -- this is a story that will likely continue to evolve over the coming weeks. In the meantime, here is a list of links to satiate your curiosity:

Sergey and His Wife Ballroom Dancing

The Federal Complaint in Full

A Zero Hedge Post With Lots of Speculation About the Ramifications for Goldman

UPDATE: Originally this post referenced speculation that Aleynikov was headed to a small Chicago outfit called Getco, but I just spoke to a company representative who confirmed that Getco was definitely not Aleynikov's new employer. The new speculation, again from Zero Hedge, is that the Chicago employer was a Citadel offshoot called Teza Technologies. We'll update as more information becomes available.

Sergey Aleynikov on Bloomberg Video

Sergey Aleynikov

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  1. Way more Boris & Natasha than James Bond. What's going on is becoming much clearer today, and it's fascinating.

  2. thanks for the comment john and yes it is fascinating


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