14 April 2014
Goldman Sachs Steals Open Source, Jails Coder 2
2014-0572.htm Goldman Sachs Steals Open Source, Jails Coder April 11, 2014
Flash Boys: A Wall Street Revolt, Lewis, Michael. W. W. Norton &
Company. (p. 245-260).
The jury in Sergey Aleynikovs trial consisted mainly of high school
graduates; all of the jurors lacked experience programming computers. They
would bring my computer into the courtroom, recalled Serge incredulously.
They would pull out the hard drive and show it to the jury. As
evidence! Save for Misha Malyshev, Serges onetime employer, the
people who took the stand had no credible knowledge of high-frequency trading:
how the money got made, what sort of computer code was valuable, and so on.
Malyshev testified as a witness for the prosecution that Goldmans
code was of no use whatsoever in the system hed hired Serge to build
Goldmans code was written in a different programming language, it was
slow and clunky, it had been designed for a firm that was trading with its
own customers, and Teza, Malyshevs firm, didnt have customers,
and so onbut when he looked over, he saw that half the jury appeared
to be sleeping. If I were a juror, and I wasnt a programmer,
said Serge, it would be very difficult for me to understand why I did
what I did.
Goldman Sachss role in the trial was to make genuine understanding
even more difficult. Its employees, on the witness stand, behaved more like
salesmen for the prosecution than citizens of the state. Its
not that they lied, said Serge. But they told things that were
not in their expertise. When his former boss, Adam Schlesinger, was
asked about the code, he said that everything at Goldman was proprietary.
I wouldnt say he lied, but he was talking about stuff that he
did not understand, and so he was misunderstood, said Serge.
Our system of justice is a poor tool for digging out a rich truth. What was
really needed, it seemed to me, was for Serge Aleynikov to be forced to explain
what he had done, and why, to people able to understand the explanation and
judge it. Goldman Sachs had never asked him to explain himself, and the FBI
had not sought help from anyone who actually knew anything at all about computers
or the high-frequency trading business. And so over two nights, in a private
room of a Wall Street restaurant, I convened a kind of second trial. To serve
as both jury and prosecution, I invited half a dozen people intimately familiar
with Goldman Sachs, high-frequency trading, and computer programming. All
were authorities on our abstruse new stock market; several had written
high-frequency code; one had actually developed software for Goldmans
high-frequency traders. All were men. Theyd grown up in four different
countries between them, but all now lived in the United States.
All of them worked on Wall Street, and so, to express themselves freely,
they needed to remain anonymous. Among them were employees of IEX. All were
naturally skeptical of both Goldman Sachs and Serge Aleynikov. They
assumed that if Serge had been sentenced to eight years in jail he must have
done something wrong . They just hadnt bothered to figure out
what that was. All of them had followed the case in the newspapers and noted
the shiver it had sent through the spines of Wall Streets software
developers. Until Serge was sent to jail for doing it, it was common practice
for Wall Street programmers to take code they had worked on when they left
for new jobs. A guy got put in jail for taking something no one
understood, as one of Serges new jurors put it. Every tech
programmer out there got the message: Take code and you could go to jail.
It was huge. The arrest of Serge Aleynikov had also caused a lot of
people, for the first time, to begin to use the phrase high-frequency
trading. Another new juror, who in 2009 had worked for a big Wall Street
bank , said, When he was arrested, we had a meeting for all the electronic
trading personnel, to talk about a one-pager theyd drafted to be discussed
with their clients around this new topic called high-frequency
The restaurant was one of those old-school Wall Street places that charge
you a thousand bucks for a private room and then more or less challenge you
to eat your way back to even. Food and drink arrived in massive quantities
: vast platters of lobster and crab, steaks the size of desktop computer
screens, smoking mountains of potatoes and spinach. It was the sort of meal
cooked decades ago, for traders who spent their days trusting their gut and
their nights rewarding it; but this monstrous feast was now being served
to a collection of weedy technologists, the people who controlled the machines
that now controlled the markets, and who had, in the bargain, put the old
school out of business. They sat around the table staring at the piles of
food, like a conquering army of eunuchs who had stumbled into the harem of
their enemy. At any rate, they made hardly a dent. Serge, for his part ,
ate so little, and with such disinterest, that I half expected him to lift
off his chair and float up to the ceiling.
His new jurors began, interestingly, by asking him lots of personal questions.
They wanted to figure out what kind of guy he was. They took an interest,
for example, in his job-market history, and noted that his behavior was pretty
consistently that of a geek who had more interest in his work than in the
money the work generated. They established fairly quickly how, I do
not know that he was not just smart but seriously gifted. These
guys are usually smart in one small area, one of them later explained
to me. For a technologist to be so totally dominant in so many areas
is just really, really unusual.
They then began to probe his career at Goldman Sachs. They were surprised
to learn that he had super-user status inside Goldman , which
is to say he was one of a handful of people (roughly 35, in a firm that then
had more than 31,000 employees) who could log onto the system as an
administrator. Such privileged access would have enabled him, at any time,
to buy a cheap USB flash drive, plug it into his terminal, and take all of
Goldmans computer code without anyone having any idea that he had done
it. That fact alone didnt prove anything to them. As one pointed out
to Serge directly, lots of thieves are sloppy and careless; just because
he was sloppy and careless didnt mean he was not a thief. On the other
hand, they all agreed, there wasnt anything the least bit suspicious,
much less nefarious, about the manner in which he had taken what he had taken.
Using a subversion repository to store code and deleting ones bash
history were common practices. The latter made a great deal of sense if you
typed your passwords into command lines. In short , Serge had not behaved
like a man trying to cover his tracks. One of his new jurors stated the obvious:
If deleting the bash history was so clever and devious, why had Goldman
ever found out hed taken anything?
To these new jurors , the story that the FBI found so unconvincing
that Serge had taken the files because he thought he might later like to
parse the open source code contained within made a lot of sense. As
Goldman hadnt permitted him to release his debugged or improved code
back to the public even though the original free license often stated
that improvements must be publicly shared the only way for him to get
his hands on these files was to take the Goldman code. That he had also taken
some code that wasnt open source, which happened to be in the same
files as the open source code, surprised no one. Grabbing a bunch of files
that contained both open source and non open source code was an efficient
way for him to collect the open source code, even if the open source code
was the only code that interested him. It would have made far less sense
for him to hunt around the Internet for the open source code he wanted ,
as it was scattered all over cyberspace. It was also entirely plausible to
them that Serges interest was confined to the open source code, because
that was the general-purpose code that might be repurposed later. The Goldman
proprietary code was written specifically for Goldmans platform; it
would have been of little use in any new system he wished to build. (The
two small pieces of code Serge had sent into Tezas computers before
his arrest both came with open source licenses.) Even if he had taken
Goldmans whole platform, it would have been faster and better for him
to write the new platform himself, said one juror.
Several times Serge surprised the jurors with his answers. They were all
shocked, for instance, that from the day Serge first arrived at Goldman,
he had been able to send Goldmans source code to himself weekly, without
anyone at Goldman saying a word to him about it. At Citadel , if you
stick a USB drive into your work station, someone is standing next to you
within five minutes, asking you what the hell you are doing, said a
juror who had worked there. Most were surprised by how little Serge had taken
in relation to the whole: eight megabytes, in a platform that consisted of
nearly fifteen hundred megabytes of code. The most cynical among them were
surprised mostly by what he had not taken.
Did you take the strats? asked one, referring to Goldmans
high-frequency trading strategies.
No, said Serge. That was one thing the prosecutors hadnt
accused him of.
But thats the secret sauce, if there is one, said the juror.
If youre going to take something, take the strats.
I wasnt interested in the strats, said Serge.
But thats like stealing the jewelry box without the jewels,
said another juror.
You had super-user status! said the first. You could easily
have taken the strats. Why didnt you?
To me, the technology really is more interesting than the strats,
You werent interested in how they made hundreds of millions of
dollars? asked someone else.
Not really , said Serge. Its all one big gamble,
one way or another.
Because they had seen it before in other programmer types, they were not
totally shocked by his indifference to Goldmans trading, or by how
far Goldman had kept him from the action. Talking to a programmer type about
the trading business was a bit like talking to the house plumber at work
in the basement about the card game the Mafia don was running upstairs. He
knew so little about the business context, one of the jurors said,
after attending both dinners. Youd have to try to know as little
as he did. Another said, He knew as much as they wanted him to
know about how they made money, which was virtually nothing. He wasnt
there for very long. He came in with no context. And he spent all of his
time troubleshooting. Another said he had found Serge to be the epitome
of the programmer whose value the big Wall Street banks tried to minimize
by using their skills without fully admitting them into the business. You
see two résumés from the banks, he said. You line
them up on paper and say maybe theres a ten percent difference between
them. But one guy is getting paid three hundred grand and the other is getting
one point five million. The difference is one guy has been given the big
picture, and the other hasnt. Serge had never been shown the
big picture. Still, it was obvious to the jurors even if it wasnt
to Serge why Goldman had hired him when it had. With the introduction
of Reg NMS in 2007, the speed of any financial intermediarys trading
system became its most important attribute: the speed with which it took
in market data and the speed with which it responded to that data. Whether
he knew it or not, said one juror, he was hired to build
Goldmans view of the market. No Reg NMS, no Serge in finance.
At least some part of the reason he remained oblivious to the nature of Goldman
Sachss trading business, all of the jurors noticed, was that his heart
was elsewhere. I think passion plays a big role, said a juror
who himself had spent his entire career writing code. The moment he
started talking about coding, his eyes lit up. Another added, The
fact that he kept trying to work on open source shit even while he was at
Goldman says something about the guy.
They didnt all agree that what Serge had taken had no value , either
to him or to Goldman. But what value it might have had in creating a new
system would have been trivial and indirect. I can guarantee you this:
He did not steal code to use it on some other system, one said, and
none of the others disagreed. For my part, I didnt fully understand
why some parts of Goldmans system might not be useful in some other
system. Goldmans code base is like buying a really old house,
one of the jurors explained. And you take the trouble to soup it up.
But it still has the problems of a really old house. Teza was going to build
a new house, on new land. Why would you take one-hundred-year-old copper
pipes and put them in my new house? It isnt that they couldnt
be used; its that the amount of trouble involved in making it useful
is ridiculous. A third added, Its way easier to
start from scratch. Their conviction that Goldmans code was not
terribly useful outside of Goldman grew even stronger when they learned
later, as Serge failed to mention it at the dinners that the
new system Serge planned to create was to be written in a different computer
language than the Goldman code.
The perplexing question, at least to me, was why Serge had taken anything.
A full month after hed left Goldman Sachs, he still had not touched
the code he had taken. If the code was so unimportant to him that he didnt
bother to open it up and study it; if most of it was either so clunky or
so peculiar to Goldmans system that it was next to useless outside
Goldmanwhy take it? Oddly, his jurors didnt find this hard to
understand. One put it this way: If Person A steals a bike from Person
B, then Person A is riding a bike to school, and Person B is walking . Person
A is better off at the expense of Person B. That is clear-cut, and most
peoples view of theft.
In Serges case, think of being at a company for three years,
and you carry a spiral notebook and write everything down. Everything about
your meetings, your ideas, products, sales, client meetingsits
all written down in that notebook. You leave for your new job and take the
notebook with youas most people do. The contents of your notebook relate
to your history at the prior company but have very little relevance to your
new job. You may never look at it again. Maybe there are some ideas, or
templates, or thoughts you can draw on. But that notebook is related to your
prior job , and you will start a new notebook at your new job which will
make the old one irrelevant. . . . For programmers, their code is their spiral
notebook. [It enables them] to remember what they worked onbut it has
very little relevance to what they will build next. . . . He took a spiral
notebook that had very little relevance outside of Goldman Sachs.
To the well-informed jury, the real mystery wasnt why Serge had done
what he had done. It was why Goldman Sachs had done what it had done. Why
on earth call the FBI? Why exploit the ignorance of both the general public
and the legal system about complex financial matters to punish this one little
guy? Why must the spider always eat the fly?
The financial insiders had many theories about this: that it was an accident;
that Goldman had called the FBI in haste and then realized the truth, but
lost control of the legal process; that in 2009 Goldman had been on hair-trigger
alert to personnel losses in high-frequency trading , because they could
see how much money would be made from it, and thought they could compete
in the business. The jurors all had ideas about why what had happened had
happened. One of the theories was more intriguing than the others. It had
to do with the nature of a big Wall Street bank, and the way people who worked
for it, at the intersection of technology and trading, got ahead. As one
juror put it, Every manager of a Wall Street tech group likes to have
people believe that his guys are geniuses. Russians, whatever . His whole
persona among his peers is that what he and his team do cant be replicated.
When people find out that ninety-five percent of their code is open source,
it kills that perception. What the guy cant say, when he gets told
Serge has taken something, is it doesnt matter what he took because
its worse than what theyll create on their own. So when
the security people come to him and tell him about the downloads, he cant
say, No big deal. And he cant say, I dont know
what he took.
To put it another way: The process that ended with Serge Aleynikov sitting
inside two holding facilities that housed dangerous offenders and then a
federal prison may have started with the concern of some Goldman Sachs manager
with his bonus. Who is going to pull the fire alarm before they smell
the fire? asked the juror who had advanced this last theory.
Its always the people who are politically motivated. As
he left dinner with Serge Aleynikov and walked down Wall Street, he thought
about it some more. Im actually nauseous, he said. It
makes me sick.
THE MYSTERY THE jury of Sergey Aleynikovs peers had more trouble solving
was Serge himself. He appeared, and perhaps even was, completely at peace
with the world. Had you lined up the people at those two Wall Street dinners
and asked the American public to vote for the man who had just lost his marriage,
his home, his job, his life savings, and his reputation, Serge would have
come dead last. At one point, one of the people at the table stopped the
conversation about computer code and asked, Why arent you
angry? Serge just smiled back at him. No, really, said
the juror. How do you stay so calm? Id be fucking going crazy.
Serge smiled again. But what does craziness give you? he said.
What does negative demeanor give you as a person? It doesnt give
you anything. You know that something happened. Your life happened to go
in that particular route. If you know that youre innocent, know it.
But at the same time you know you are in trouble and this is how its
going to be. To which he added, To some extent Im glad
this happened to me. I think it strengthened my understanding of what living
is all about. At the end of his trial, when the original jury returned
with its guilty verdict, Serge had turned to his lawyer, Kevin Marino, and
said, You know, it did not turn out the way we had hoped. But I have
to say , it was a pretty good experience. It was as if he were standing
outside himself and taking in the situation as an observer. Ive
never seen anything like it, said Marino.
In the comfort of the Wall Street cornucopia, that notion that the
hellish experience hed been through had actually been good for him
was too weird to pursue, and the jurors had quickly returned to discussing
computer code and high-frequency trading. But Serge actually believed what
he had said. Before his arrest before he lost much of what he thought
important in his life he went through his days and nights in a certain
state of mind: a bit self-absorbed, prone to anxiety and worry about his
status in the world. When I was arrested , I couldnt sleep,
he said. When I saw articles in the newspaper, I would tremble at the
fear of losing my reputation. Now I just smile. I no longer panic. Or have
panic ideas that something could go wrong. By the time he was first
sent to jail, his wife had left him, taking their three young daughters with
her. He had no money and no one to turn to. He didnt have very
close friends, his fellow Russian émigré Masha Leder
recalled. He never did. Hes not a people person. He didnt
even have anyone to be power of attorney. Out of a sense of Russian
solidarity, and out of pity, she took the jobwhich meant, among other
things, frequent trips to visit Serge in prison. Every time I would
come to visit him in jail, I would leave energized by him, she said.
He radiated so much energy and positive emotions that it was like therapy
for me to visit him. His eyes opened to how the world really is. And he started
talking to people. For the first time! He would say: People in jail have
the best stories. He could have considered himself a tragedy. And he
By far the most difficult part of his experience was explaining what had
happened to his children. When he was arrested, his daughters were five,
three, and almost one. I tried to put it in the most simple terms they
would understand, said Serge. But the bottom line was I was
apologizing for the fact that this had happened. In jail he was allowed
three hundred minutes a month on the phone and for a long time the
kids, when he called them , didnt pick up on the other end.
The holding facility in which Serge spent his first four months was violent,
and essentially nonverbal, but he didnt find it hard to stay out of
trouble there. He even found people he could talk to, and enjoy talking to.
When they moved him to the minimum-security prison at Fort Dix, in New Jersey,
he was still in a room crammed with hundreds of other roommates, but he now
had space to work. He remained in some physical distress , mainly because
he refused to eat meat. His body, he had really bad times there,
said Masha Leder. He lived on beans and rice. He was always hungry.
Id buy him these yogurts and he would gulp them down one after
another. His mind still worked fine, though, and a lifetime of programming
in cube farms had left him with the ability to focus in prison conditions.
A few months into Serges jail term, Masha Leder received a thick envelope
from him. It contained roughly a hundred pages covered on both sides in
Serges meticulous eight-point script . It was computer code a
solution to some high-frequency trading problem. Serge feared He radiated
so much energy and positive emotions that it was like therapy for me to visit
him. His eyes opened to how the world really is. And he started talking to
people. For the first time! He would say: People in jail have the best stories.
He could have considered himself a tragedy. And he didnt. By
far the most difficult part of his experience was explaining what had happened
to his children. When he was arrested, his daughters were five, three, and
almost one. I tried to put it in the most simple terms they would
understand, said Serge. But the bottom line was I was apologizing
for the fact that this had happened. In jail he was allowed three hundred
minutes a month on the phone and for a long time the kids, when he
called them , didnt pick up on the other end. The holding facility
in which Serge spent his first four months was violent, and essentially
nonverbal, but he didnt find it hard to stay out of trouble there.
He even found people he could talk to, and enjoy talking to. When they moved
him to the minimum-security prison at Fort Dix, in New Jersey, he was still
in a room crammed with hundreds of other roommates, but he now had space
to work. He remained in some physical distress , mainly because he refused
to eat meat. His body, he had really bad times there, said Masha
Leder. He lived on beans and rice. He was always hungry. Id buy
him these yogurts and he would gulp them down one after another. His
mind still worked fine, though, and a lifetime of programming in cube farms
had left him with the ability to focus in prison conditions. A few months
into Serges jail term, Masha Leder received a thick envelope from him.
It contained roughly a hundred pages covered on both sides in Serges
meticulous eight-point script . It was computer code a solution to
some high-frequency trading problem. Serge feared that if the prison guards
found it, they wouldnt understand it, decide that it was suspicious,
and confiscate it.
A year after hed been sent away, the appeal of Serge Aleynikov was
finally heard, by the Second Circuit Court of Appeals. The judgment was swift,
unlike anything his lawyer, Kevin Marino, had seen in his career. Marino
was by then working gratis for a client who was dead broke. The very day
he made his argument, the judges ordered Serge released, on the grounds that
the laws he stood accused of breaking did not actually apply to his case.
At six in the morning on February 17, 2012, Serge received an email from
Kevin Marino saying that he was to be freed.
A few months later, Marino noticed that the government had failed to return
Serges passport. Marino called and asked for it back. The passport
never arrived; instead Serge, now staying with friends in New Jersey, was
arrested again and taken to jail. Once again, he had no idea what he was
being arrested for, but this time neither did the police. The New Jersey
cops who picked him up didnt know the charges, only that he should
be held without bail, as he was deemed a flight risk. His lawyer was just
as perplexed. When I got the call, said Marino, I thought
it might have something to do with Serges child support. It
didnt. A few days later, Manhattan district attorney Cyrus Vance sent
out a press release to announce that the State of New York was charging Serge
Aleynikov with accessing and duplicating a complex proprietary and
highly confidential computer source code owned by Goldman Sachs . The
press release went on to say that [ t] his code is so highly confidential
that it is known in the industry as the firms secret sauce,
and thanked Goldman Sachs for its cooperation. The prosecutor assigned
to the case, Joanne Li, claimed that Serge was a flight risk and needed to
be re-jailed immediatelywhich was strange, because Serge had gone to
and returned from Russia between the time of his first arrest and his first
jailing. (It was Li who soon fled the case to a job at Citigroup.)
Marino recognized the phrase secret sauce. It hadnt come
from the industry but from his opening statement in Serges
first trial, when he mocked the prosecutors for treating Goldmans code
as if it were some secret sauce. Otherwise Serges re-arrest
made no sense to him. To avoid double jeopardy, the Manhattan DAs office
had found new crimes with which to charge Serge for the same actions. But
the sentencing guidelines for the new crimes meant that, even if he was
convicted, it was very likely he wouldnt have to return to jail. Hed
already served time, for crimes the court ultimately determined he had not
committed. Marino called Vances office. They told me that they
didnt need him to be punished anymore, but they need him to be held
accountable, said Marino. They want him to plead guilty and let
him go on time served. I told them in the politest terms possible that they
can go fuck themselves. They ruined his life.
Oddly enough, they hadnt. Inside of me I was completely witnessing
, said Serge, about the night of his re-arrest. There was no
fear, no panic, no negativity. His children had reattached themselves
to him, and he had a new world of people to whom he felt close. He thought
he was living his life as well as it had ever been lived. Hed even
started a memoir, to explain what had happened to anyone who might be interested.
If the incarceration experience doesnt break your spirit, it changes
you in a way that you lose many fears. You begin to realize that your life
is not ruled by your ego and ambition and that it can end any day at any
time. So why worry? You learn that just like on the street, there is life
in prison, and random people get there based on the jeopardy of the system.
The prisons are filled by people who crossed the law, as well as by those
who were incidentally and circumstantially picked and crushed by somebody
elses agenda. On the other hand, as a vivid benefit, you become very
much independent of material property and learn to appreciate very simple
pleasures in life such as the sunlight and morning breeze.