Aleynikov Conviction Tossed, Again

On Monday July 6, 2015 Judge Conviser of the New York State Supreme Court acquitted Sergey Aleynikov. This marks the second acquittal Aleynikov has received since his initial arrest in July 2009. It was then that Aleynikov was accused of stealing software code that could be used to unfairly manipulate stock prices. Aleynikov was convicted of, and sentenced to eight years in prison for, violating the National Stolen Property Act and the Economic Espionage Act. Aleynikov had only spent one year in a federal prison at the time that the Second Circuit Court of Appeals overturned his conviction.

The appellate court ruled that federal prosecutors misapplied the corporate espionage laws. In their opinion, the court highlighted that the Economic Espionage Act contained two operative provisions. The first, 18 U.S.C. §1831(a), which broadly expresses that “[w]hoever, intending or knowing that the offense will benefit any foreign government, foreign instrumentality, or foreign agent, knowingly … without authorization … downloads, uploads, … transmits, …. or conveys a trade secret” is guilty of a federal offense, and may be imprisoned for up to 15 years. See 18 U.S.C. §1831(a).

However, Aleynikov was charged with violating a second provision, 18 U.S.C. §1832(a) which imposes a limitation that “[w]hoever, with intent to convert a trade secret, that is related to or included in a product that is placed in interstate or foreign commerce, to the economic benefit of anyone other than the owner…” 18 U.S.C. §1832(a) (emphasis added). The court held that Goldman’s HFT system was neither ‘produced for’ nor ‘placed in’ interstate or foreign commerce. Goldman had no intention of selling its HFT system of licensing it to anyone. U.S. v. Aleynikov 676 F.3d 71, 81 (2d. Cir. 2012)(citing United States v. Aleynikov, 737 F.Supp. 2d 173, 175 (S.D.N.Y 2010)). The court further stated that Goldman went to great lengths to maintain the secrecy of the system and that it was not decided to enter or pass in commerce. Therefore, the theft of the source code relating to the system was not an offense under the Economic Espionage Act. Aleynikov 676 F.3d at 81.

Shortly after his release from federal prison, Aleynikov was arrested again and charged in New York State court. In May 2015, a jury convicted Aleynikov. However in his opinion, Judge Conviser stated that in order to find Aleynikov guilty under the charges the prosecution needed to establish that Aleynikov made a “tangible reproduction” of Goldman’s source code for its high-frequency trading business, and that he intended to claim most of the code’s economic value for himself. The prosecution failed to prove either and the jury verdict had to be overturned.

This case has highlighted just how far the legislature is behind technology. Laws have not been updated to keep up with advances in technology. After Aleynikov’s initial acquittal Congress amended the Economic Espionage Act of 1996. Judge Conviser implored that District Attorney Vance make a similar appeal to New York legislators in regard to the state law under which Aleynikov was charged.

On the flip side, it has been raised that this trial from the beginning has been a “civil dispute masquerading as a criminal case,” and that regardless of the antiquated statutes under which Aleynikov was charged this case should simply not be criminal. However, Goldman Sachs may not like their position on a civil claim for trade secrets misappropriation. It is not clear that the source code was even a trade secret. Goldman admitted that part of the code was based on open source code, and therefore was a conglomeration of code based on open source information, some proprietary information, and other sources in the public domain.

The case is People v. Aleynikov, New York State Supreme Court, New York County, No. 60353/2012

Additional information on United States v. Aleynikov can be found here

Vanity Fair's 2013 story profiling Aleynikov can be found here