Goldman Sachs code stolen – a key to manipulating stocks
7/7/2009 by: Thomas Gordon
On July 3rd, Sergey Aleynikov, a Russian immigrant living in New Jersey was arrested and charged with stealing top secret computer code. He was charged with stealing and sending secret computer code overseas which his former firm uses to automatically trade stocks and commodities.
The rumors are swirling because Aleynikov was a $400,000 a year employee at Goldman Sachs who lead development of a distributed real-time co-located high-frequency trading (HFT) platform. The main objective of the platform was a very low latency (microseconds) event-driven market data processing, strategy, and order submission engine. The platform was obtaining multicast market data from NASDAQ, NYSE, CME and running trading algorithms with low latency requirements responsive to changes in market conditions.
The criminal complaint claimed that Aleynikov did uploads of the stolen code on four occasions between June 1 and June 5 from his work desktop to a website (this guy is not very smart about logs being kept on company network activity – Ed.) According to Special Agent McSwain's affidavit, in those 5 days Aleynikov proceeded to encrypt and upload to a website in Germany, with a UK owner, 32 megs of ultra top-secret trading proprietary code. In addition, he kept copies of the code on his home desktop, his laptop, and a flash drive.
The criminal complaint describes the unnamed (potentially Aleynikov’s former employer Goldman Sachs) financial institution platform:
The financial institution has devoted substantial resources to developing and maintaining a computer platform that allows the financial institution to engage in sophisticated high-speed, and high-volume trades on various stock and commodities markets. Among other things, the platform is capable of quickly obtaining and processing information regarding rapid developments in these markets.
This means that the financial institution was gathering more information and digesting it quicker and making decisions faster than the competition. The complaint says this is worth millions of dollars in revenue. We suspect the numbers could be higher, like into the billions of dollars per day.
Item 13 of the complaint deals with Aleynikov's signed statement to the FBI Special Agent. When arrested, Aleynikov told the FBI he “only intended to collect ‘open source’ files on which he had worked, but later realized that he had obtained more files than he intended.” However, he admits further along that after he uploaded the files he encrypted them and “erased” the program he used to encrypt them.
Bloomberg reports that Aleynikov has posted $750,000, but must promise to stay away from his computer.
You would think Goldman Sachs and the New York Stock Exchange (NYSE) would have some fiduciary responsibility to inform the public that computer code used by an investment house was stolen.
This week Goldman Sachs mysteriously disappeared from the NYSE Program Trading Report. The previous week, Goldman Sachs represented about 60% of all principal program trading. Program trading accounted for 49% of all NYSE trading last week., One analyst asked if this could be called an issue threatening the National Security of the United States. The US Attorney at Aleynikov’s first hearing said this could threaten trading all over the world.
The New York Stock Exchange said on Monday that there was no connection between an alleged security breach at Goldman Sachs and an error that dropped the big investment bank from a trading report the exchange had issued last week. Ray Pellecchia , NYSE's spokesperson said it was a technical, not human, error that fumbled the Goldman Sachs’ data. "There was no discussion" with Goldman on the data, Pellecchia said, adding the NYSE will re-run the report with the Goldman data later this week.
The spokesman said the Aleynikov case was in no way related to NYSE's program trading list error, nor was it related to the connectivity "glitch" that impacted orders and spurred the exchange to extend trading by an extra 15 minutes on Friday. The NYSE had no comment on whether it is in discussions with Goldman Sachs about the alleged security breach.
Goldman Sachs’ troubles don't stop with just the stolen computer code. Rolling Stone is running an expose which claims Goldman Sachs was behind every market crash since 1920s.
An article in the July 9-23 issue of the magazine, written by Matt Taibbi, lists five asset bubbles that the 140-year-old investment bank helped create and Taibbi asserts that the firm is currently working to cause another.
The five bubbles are the Wall Street stock bubble in the 1920s, which led to the Great Depression; the tech-stock bubble of the late 1990s, which ended in the 2001 recession; the housing bubble of the past decade, which resulted in the current economic crisis; the oil price run-up last summer, when oil shot up to $140 a barrel, likely helping tilt the entire world into recession; and what Taibbi describes as “rigging the bailout,” when Goldman Sachs’ well-placed alumni inside the US government engineered last fall’s bank bailout in such a way that the company profited massively.
Leela de Kretser, a business writer at the Australian Herald Sun, says the best part of Taibbi's article is where he calls Goldman Sachs “a great vampire squid wrapped around the face of humanity”. That brought an equally immature response from Goldman Sachs. Kretser says most of what Taibbi has woven together is public knowledge which he gave an expose spin and should be dismissed. That just doesn't seem to be happening because everybody loves an expose.
Taibbi's blog is hammering away at Goldman Sachs reputation and their answers to his Rolling Stone article.
Will the stolen code suddenly appear in some foreign countries stock trading house. Or is it just a minor security breach aggravation? We think the NYSE and Goldman Sachs owe the investing world a better explanation than they have given thus far.
Goldman Sachs, stolen software, Sergey Aleynikov, arrested, criminal complaint, FBI, NASDAQ, NYSE, CME, open source, German website, fiduciary responsibility, Program Trading, US Attorney
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