The Secrets of Goldman Sachs

Posted by: David Henry on July 06

Prediction: The case of the stolen Goldman Sachs trading software will leave more tarnish on Goldman reputation than take profits from its income statement. It will also provide lots of amusement for those of who don’t work there or own the company’s stock.

In case you haven’t seen the headlines, a former Goldman computer wiz and Russian immigrant was arrested by a team of FBI agents at Newark Airport on July 3. Sergey Aleynikov was charged with stealing and sending overseas secret computer code which the firm uses to automatically trade stocks and commodities. “The trades made…typically generate many millions of dollars of profits per year” for the firm, according to a criminal complaint filed in the case by Special Agent Michael G. McSwain of the Federal Bureau of Investigation. The firm believes, the complaint said, that if the programs end up in the hands of competitors that its ability to profit from the strategies would be “significantly diminished.”

Aleynikov told the FBI agent that he had not distributed the proprietary computer programs and that he had accidentally copied them while collecting “open source” software as he was leaving his job at the firm. One of Aleynikov’s supervisors said the immigrant had said he was quitting for a new company that was doing the same type of trading and that would allow him to earn him three times his $400,000 annual salary from Goldman, according to the complaint.

The arrest was first reported July 5 by Reuters columnist Matthew Goldstein. He asked, “Did someone try to steal Goldman Sach’s secret sauce?” His story is attracting a lot of interest on the Internet today, though it does not seem to have hurt the stock, which is up more than 1%. The story includes statements from the Aleynikov’s wife and lawyer that the jailed man is innocent. (Disclosure: Goldstein and I teamed-up to write a number of stories together before he left BusinessWeek for Reuters.)

A Goldman spokesman declined to comment on the arrest or say anything about how significant the stolen trading software has been to the firm’s bottom line.

Now you might think that a company with publicly-traded stock and investors around the world should be more forthcoming about a security breach involving one of its core businesses. That’s especially true after an FBI agent has said in a court document that “many millions of dollars of profits” are potentially at stake. But Goldman, at least for now, apparently doesn’t believe it has to answer to its public investors in this case.

Maybe Goldman isn’t talking because the theft is not big enough to be a “material” event that it must be disclosed under federal law. Technically, that could well be true. After all, the FBI agent was talking in “millions” whereas Goldman counts trading revenues in billions—specifically $6.6 billion trading bonds, currencies and commodities and another $1 billion trading stocks in the last quarter. The agent describes the programs as guiding “high-volume automated trading.” That sounds like the kind of trading that can only take place with electronically-traded stocks and commodities contracts as opposed to big-dollar, personally-negotiated deals for derivatives and large blocks of stocks and bonds. Those big deals are probably where Goldman makes most of its trading profits, but Goldman won’t confirm that.

If indeed the security breach was not material, then Goldman should just say so, flatly and convincingly. Then the story could move on to such logical follow-up topics as the risks people take when they download office computer files while changing jobs. But Goldman, by not saying anything, is leaving a fertile environment for speculation and hyperbole. Right or wrong, Goldman’s name will probably soon be coming to the top in Google searches on international espionage, Russian conspiracies and computer security threats.

Reader Comments

jpquezada

July 6, 2009 06:30 PM

You'll find their codes at Pirate Bay

Jane

July 6, 2009 06:37 PM

According to the article in Bloomberg News, the sweat at Sachs is not over potential loss of profits - but that the owner of the software will be able to "manipulate markets."
I had to read that twice. But that's what it said.

Dailydubya

July 6, 2009 07:00 PM

Tsk, tsk... first that RollingStone article by Matt Taibi (Google it) and now this.

Karl

July 6, 2009 07:23 PM

Didn't Goldman Sachs receive $10 BILLION in TAXPAYER'S money last year? And didn't Goldman's CEO make $42.9 MILLION in compensation in fiscal 2008? You can 'Google' this- GOLDMAN CEOS PAY PACKAGE DECLINED WITHOUT BONUS, and read all about it. Do you know that $42.9 MILLION in one year equals $825,000.00 per week? That's $165,000.00 PER DAY! Or $20,625.00 PER HOUR, based on a five day work-week at 40 hours per week! That's a lotta dough, huh?

Christopher Holland

July 6, 2009 08:09 PM

Goldman people are not smart if they think they can manage these things through silence. The golden rule about problem management is to be open and up front and concentrate on finding solutions, not hiding the problem. Goldman management is living on borrowed time and their reputations if this is how they run things. These guys are way over rated.

Yikes!

July 6, 2009 09:25 PM

Looks like Goldman Sachs could be the 'KGB's way in to the U. S. Treasury.....

sjfone

July 6, 2009 09:27 PM

Yeah, but who was the last investment bank standing.

Jim

July 6, 2009 10:37 PM

its just money,it screws with their head who cares. The company is designed to deplete their assets based on the market. i guess this year they give all their bonus back.

JohnMD

July 6, 2009 10:42 PM

I believe this is the software that is used by Goldman Sachs to manipulate markets up and down, with big infusions of taxpayer cash from the Fed. It is the key to the corrupt institution that many of us call PPT/Fed, which is a cartel controlled by the big banks, and funded by the Federal Reserve's (Wall Street's slush fund). It is VERY good that it was stolen. Now, someone who wants to, and has access to enough cash, can, potentially, screw up PPT/Fed's manipulations of the market.

Dennis

July 6, 2009 11:48 PM

One thing for sure: Goldman's corporate security is top notch. If you can spot a copy-paste type of activity on a server farm of the size of Goldman's computing legion of servers and other number-crunching hardware, I take my hat off for the bank! Good job.

The Big Story

July 7, 2009 12:16 AM

So the real story is that Goldman admits thay have the ability "to manipulate markets in unfair ways".

SK

July 7, 2009 09:41 AM

Cat is out of the bag. "Goldman's code can manipulate the market in wrong hands". Hmmm, what makes anyone think that the code has not already been used to manipulate the market... the ups and downs in the market contrary to earnings news isn't natural. Now we know who was doing all this...

marcjay

July 7, 2009 12:55 PM

The irony here is that this is what happens when a thief has something stolen from him!

Chuck

July 7, 2009 01:27 PM

The FBI picked him up in Newark as he arrived on a flight. What they didn't say is where that flight came from? Why did he have to go TO Europe (?), and to see who? And why come back?

wild_guess

July 8, 2009 08:13 AM

maybe you will find some funky code inside conflicting the compliant regulation, who knows

Tom

July 8, 2009 10:40 AM

Goldman sachs have been robbing the public, especially the individual traders, blind with their programs for a lot of years now and will continue to do so forever. It's like having a license to steal, the way they probably work is they spit out a few stories in websites like marketwatch and newspapers like barron's on hot tips, amass all the stupid buyers than sink the stock.

They are even worse when it comes to day trading, they screw traders on a minute by minute basis. Stay away from the market until market makers are not allowed to trade for themselves, and that's just a start. I've seen these bastards at Goldman work and screw people with impunity. America does not need these crooks. I'm happy that russia dude sole their plans, I wish they leak it to the public so we can really see how Goldman makes money.

Bob

July 8, 2009 11:08 AM

David Henry is a racist!

This guy (Sergey) has spent half of his life (19 years) in the United States. Yet, look at how he is being referred to in this article: "a former Goldman computer wiz AND Russian immigrant was arrested by a team of FBI agents"; "One of Aleynikov’s supervisors said THE IMMIGRANT had said he was quitting for a new company"

What does the fact that he is Russian have to do with the alleged theft of the code? And if he were Chinese, or Brazilian, or German how would that change the story?

This is simply disgusting!!!

Alun

July 8, 2009 12:57 PM

I've Got to agree with Bob 11:08. I guess to keep with the theme the writer should have said...

..." complaint filed in the case by Great grandson of Immigrant - Special Agent Michael G. McSwain"

Rob

July 8, 2009 01:03 PM

The way GS is manipulating the news on this is not dissimilar to what's going on in China. For all we know, this guy could well be a hero who was trying to expose the illegal manipulation he learned his employer was doing. I've known many people who quit their jobs out of the disgust they felt for the unethical and sometimes illegal activities they forced their people to be a party to.

Software Engineer

July 10, 2009 12:43 PM

His new company offered a raise from 400k to 3x that.

JT

July 14, 2009 11:44 PM

Oh this is so shocking, give me a break what the hell have you people been drinking? Just go with the flow the man is in control.....

Richard Keane

November 7, 2009 04:12 AM

Secret Software & Naked Short Selling
We need NSS arrests - not Insider Trading arrests
It is November 5th, 2009 at high noon and the SEC is all over the news about another arrest. They are all on stage giving this big press conference on 14 arrests for Insider Trading connected to the Galleon Group investigation. Is it Insider Trading? The Government wanted the world to believe this caused the financial meltdown on Wall Street. Three weeks earlier the SEC made the first arrest for Insider Trading involving Raj Rajaratnam and 5 other people on Wall Street.
It is my opinion that the Government and the SEC is involved in a cover up to try and make people think that it was insider trading that caused the crisis of 2008. Let the truth be known. The news media, along with Goldman Sachs and many other Wall Street companies and people of power are all involved in the biggest cover up in the history of the United States. It involves greed to the fullest extend. The SEC is responsible, under the leadership of Christopher Cox in July 2007, the Securities Exchange Commission abolished the Up Tick rule. The elimination of the Up Tick rule created a wave of corruption that grew out of control, based on Naked Short Selling and the use of secret software and super fast computers.
Insider trading has played a role in the financial crisis, yet the story not being told by the news media is the arrest of a Goldman Sachs employee who tried to steal Goldman Sachs secret software. This arrest came over the July 4th Holiday week-end and was aired briefly on a Saturday night on TV and then came Monday July 6th, 2009 and the story disapeared. A few weeks later Goldman Sachs reported its FY 2009 2nd QT earnings ( April – May -June ) and Goldman Sachs made over $100 million dollars a day in 46 of the 64 trading days for that quarter. How could this be possible after a 17 month recession. Wall Street changed two major Laws. The first being the use of decimal places (2001 )instead of fraction. Years later and after they lobbied for the removal of the Up Tick rule ( 2007 ) the secret software was designed and in place ready to go into full operation now that Wall Street was allowed to naked short sell millions upon millions of shares that Goldman Sachs and other hedge funds didn’t even own and failed to deliver. Their greed took over, who wouldn’t , when Goldman Sachs was making over $100 million a day in trading. They destroyed companies like Sirius XM radio and overstock.com and many others. Then they began naked shorting the banking industry and attacking each other.
This is the truth that the news media, corporate Amercia, the SEC, the Government, Goldman Sachs, Hank Paulson and the many others that were in power have not told the American people and the world. Now, as I write this letter, they are now trying to con the world into thinking it was insider trading that caused 95% of the middle class workers to lose 20% - 60 % of their investments and 401K’s.
In the end the Entire story will be told and I hope I get my chance to tell it. Check the facts. There was an arrest of that Goldman Sachs employee in July 2009. Why was it covered up? Where are the arrests for Naked Short Selling and Goldman Sachs use of their secret software that stole the wealth off investors all across the country. It will go down as the biggest scandal in history.

Richard Keane 11-7-09

Thank you for your interest. This blog is no longer active.

 

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BusinessWeek's Adrienne Carter, Jessica Silver-Greenberg, and David Henry deconstruct the mysteries of high finance, Wall Street, and hedge funds for pros and ordinary investors. E-mail them directly if you've got tips about big deals, a hedge fund, or even securities industry gossip.

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