What do you do after your federal conviction for stealing trade secrets from your former employer is thrown out on a technicality but another prosecutor charges you for theft under state law? Why you sue the employer from whom you allegedly stole the trade secrets in the first place to cover your legal expenses, of course. Welcome to America, Sergey Aleynikov.

This is the latest salvo in the never-ending saga involving ex-Goldman Sachs programmer Sergey Aleynikov, who filed a lawsuit in New Jersey this week against his former employer Goldman Sachs demanding that the federal court order Goldman Sachs to pay his $2.4 million in attorneys fees and indemnify him for his future attorneys fees for the latest criminal proceedings. (A hat tip to Kenneth Vanko for his post on this case yesterday aptly entitled, “This Move Takes . . . Guts;” a PDF copy of Aleynikov’s complaint can be found below).

Background: For those not following the case, Aleynikov was responsible for developing Goldman’s high frequency trading (HFT) computer programs for various commodities and equities markets. In April 2009, Aleynikov resigned from Goldman and accepted a job at Teza Technologies to help develop that firm’s own version of a computer platform that would allow Teza to engage in HFT. On his last day, Aleynikov transferred thousands of computer files, including source code to the HFT trading system, to a server in Germany that was not blocked by Goldman’s firewall. That evening, at his home, Aleynikov downloaded the material from the German server to his personal computer and then to his laptop and a thumb drive so that he could make it available to Teza.

In December 2010, a federal jury in New York convicted Aleynikov of stealing that source code under the Economic Espionage Act (EEA), but on appeal, the U.S. Court of Appeals for the Second Circuit reversed the conviction in February 2012. In my view and the view of other commentators, the Second Circuit erroneously applied a strained view of the types of trade secrets covered by that provision of the EEA. In August, Manhattan District Attorney Cyrus Vance, Jr. brought a criminal action against Aleynikov for the unlawful use of secret scientific material and duplication of computer-related material, both felonies under New York State law, for essentially the same conduct that was the subject of the reversed federal conviction.

Aleynikov’s Lawsuit for His Defense and Attorneys Fees: The lawsuit brought by Aleynikov cites certain bylaws of Goldman that require the defense and indemnification of officers charged with a crime, a bylaw which is not uncommon in the corporate world. According to The New York Times, Goldman Sachs has paid a large portion of the legal fees for former director, Rajat K. Gupta, who was convicted of leaking boardroom talks to hedge fund magnate Raj Rajaratnam, as well as for Fabrice Tourre, who faces a securities fraud law lawsuit by the SEC. Of course, neither of those Goldman Sachs officers were alleged to have stolen from Goldman Sachs. 

The bylaws in question cover officers who were “made party to a criminal action by reason of the fact that such person was an officer of the company.”   However, it doesn’t seem that Aleynikov was prosecuted by virtue of the fact that he was an officer, or for anything he did in connection with his duties and responsibilities as an officer. To the contrary, he was prosecuted because he was to alleged to have stolen from the company for his position at his new company Teza; the fact that he was a Goldman officer really does not appear to have had any thing to do with his prosecution, other than it provided him with access to the trade secrets in question. Moreover, the alleged misconduct took place after his resignation from Goldman.

Because Goldman Sachs remains a lightning rod for many and is perceived as pulling the strings behind the prosecutions, Aleynikov has achieved almost folk hero status.  In addition, some in the media seem increasingly troubled by the fact that he is being charged again for the same crime, even though double jeopardy apparently does not bar the state court proceedings. As a result, The Wall Street Journal ran a somewhat sympathetic piece on Friday entitled “Programmer’s Case Is Matter of (Legal) Code” (The New York Times article cited above was equally uncritical as was another article on Friday). 

The Trade Secret Litigator will continue to monitor this unusual proceeding and keep you posted on future developments.

Aleynikov v. Goldman Sachs.pdf (2.10 mb)