Dance through a rogue programmer scandal at Goldman-Sachs?

Published on July 6th, 2009

Posted by Eideard in Business, crime, tech

While most in the US were celebrating the 4th of July, a Russian immigrant living in New Jersey was being held on federal charges of stealing top-secret computer trading codes from a major New York-based financial institution—that sources say is none other than Goldman Sachs.

The allegations, if true, are big news because the codes the accused man, Sergey Aleynikov, tried to steal is the secret code to unlocking Goldman’s automated stocks and commodities trading businesses. Federal authorities allege the computer codes and related-trading files that Aleynikov uploaded to a German-based website help this major “financial institution” generate millions of dollars in profits each year.

The platform is one of the things that apparently gives Goldman a leg-up over the competition when it comes to rapid-fire trading of stocks and commodities. Federal authorities say the platform quickly processes rapid developments in the markets and uses top secret mathematical formulas to allow the firm to make highly-profitable automated trades.

The criminal case has the potential to shed a light on the inner workings of an important profit center for Goldman and other Wall Street firms. The federal charges also raise serious questions about the safeguards Wall Street firms deploy to protect their proprietary trading systems.

The Federal Bureau of Investigations, in charging Aleynikov, says he began working for the major financial institution in May 2007 as a computer programmer and left in early June. That would appear to match the description of a man named Serge Aleynikov, as it is listed on the social networking website LinkedIn.

The bio information for Aleynikov on LinkedIn says he joined Goldman in May 2007 and was vice president for equity strategy. The bio says he was responsible for “development of a distributed real-time co-located high-frequency trading platform.” In his own words, he goes on to describe the platform as “a very low latency (microseconds) event-driven market data processing, strategy and order submission engine.”

The case against Aleynikov may explain why the New York Stock Exchange moved quickly in the past week to alter its methodology for reporting program stock trading. Goldman often was at the top of the chart–far ahead of its competitors.

Don’t they do a great job at security at Goldman-Sachs?

Thanks, Mr. Justin

15 users responded in " Dance through a rogue programmer scandal at Goldman-Sachs? "

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# 1 Rich said, on July 6th, 2009 at 9:13 am

I say they blow that algorithm all over the Internet while they’re at it. I’d like to see it.

# 2 Sea Lawyer said, on July 6th, 2009 at 10:59 am

Need to protect these systems for enabling arbitrage.

# 3 father time said, on July 6th, 2009 at 11:25 am

This story is a bunch of crap.

GS makes money by charging fees on the trades it makes. End of story.

There are no magical formulae that predict markets, or manage risk.

The market is fundementally a Ponzi scheme.

# 4 amodedoma said, on July 6th, 2009 at 11:33 am

Funny how they needed 10 billion of our tax dollars last year. Hell anybody’s successful that way. Obviously there are methods of investment for those that have enough capital that can guarantee large returns.

# 5 father time said, on July 6th, 2009 at 11:45 am

Amo, your last sentence is not logical.

# 6 bob said, on July 6th, 2009 at 11:55 am

father time, you’re just flat incorrect. These guys are heavily invested in their own products, that’s a matter of black and white.

# 7 amodedoma said, on July 6th, 2009 at 12:25 pm

Allow me to elucidate. If I had enough capital I could hire the best lobbyists in Washington to guarantee that my investments have the advantage of favourable legislation. Or the fact that many industries affect each other. I could for example invest in a biofuel refinery and since I know they’ll need corn buy up agricultural interests. I’m sure there are many other options, but it seems obvious that the more money you’ve got to invest, the safer it is.

# 8 father time said, on July 6th, 2009 at 12:58 pm

Makes sense now.

However, every cent earned requires some other player to lose a cent (or the potential to have made that cent). If an organization played the market that deftly, no one would buy or sell to them because it would be a sure bad bet. Yes? Maybe the market is functional because it is suboptimal, or maybe it is undistinguishable from a Ponzi scheme?

# 9 laxdude said, on July 6th, 2009 at 1:27 pm

father time, the stock market and monetary system are not zero-sum systems. So both sides in a deal can proffit. You do not have to have a looser in the deal.

# 10 laxdude said, on July 6th, 2009 at 1:27 pm

[Duplicate comment deleted. Please don't double post! - ed.]

# 11 MikeN said, on July 6th, 2009 at 2:11 pm

1)Someone is selling for X at place A.
2)Someone is buying for X+k at place B.

Computer monitors all places, sees 1 and 2, buys at place A and sells at place B.

Now let’s write it up as something sinister.

# 12 father time said, on July 6th, 2009 at 2:53 pm

MikeN has provided a good example of arbitrage. Of course time is a key component, you have to execute the purchase and sale before the equation reverses itself, or perhaps there is some way you can sell & buy naked shares (I don’t know how).

laxdude, how is the market not zero sum when you consider that if I sell you something at $1, and you turn around and sell it at $1.50, that I haven’t lost the potential for a $0.50 gain – which is a loss as real as buying at $2, and selling at $1.50? If there was no inflation, then the loss would be of less consequence, but inflation forces the player to make money on each trade just to keep up with the falling value of the dollar. When inflation hits 10% per year, this will greatly increase the pressure for positive price moves.

But returning to the question, how is the stock market different from a Ponzi scheme?

# 13 EasyComeEasyGo said, on July 6th, 2009 at 6:37 pm

Check out the Bloomberg news story – Goldman claims with this code in the wrong hands that markets could be manipulated. Geez, I wonder how they know that? Maybe from their own experience?

Maybe its not a bad idea to require that all code used by the Wall St. firms for trading be public domain as a safe guard against using software to manipulate the market.

# 14 soundwash said, on July 7th, 2009 at 8:25 am

wooo, the “golden formulae” Oookay now..

“Hey, Look over here!”

lets not discuss how G&S have a small
force of affiliates, ex-exployees, alumni
and notable “customers” neatly installed in top-level government and the white house.

Having A Goldman thug in control of the treasury/Fed since Greenspan and beyond
is of little concern in the conflict of interest arena, yes?

here is just a small sample of names of the real “program” G&S is using..

Robert Rubin, Timothy Geithner, Lawrence Summers, Alan Greenspan, Stephen Friedman, Henry Paulson, Stephen Rattner, Ben Bernanke

and for a spin, I add, ex-co-ceo Gov. Corzine of New Jersey..which gives oversight of one of the biggest sea ports in the U.S. -very handy.

as if this all doesn’t suck enough, Congress is
thinking about giving The Fed/G&S the power to decide who is a threat to the economy (ie “to Big to Fail”)

anyway, i would love to see the “conflict of interest” code in the program. no doubt it compliments G&S’s “human confliction” quite nicely.

failing all that..

Hey!, Look Over Here!

-s

# 15 RKeane said, on August 27th, 2009 at 8:03 pm

Decimal Place Trading caused the recession of 2008
This recession was caused by the manipulation of stock prices on Wall Street through naked short-selling, flash trading, high-frequency trading, secret software, super-fast computers and what I feel was the main cause of this corruption: “Decimal Place Trading.” As I write this article today, much of this corruption is now slowly coming out through social media outlets such as Twitter and Facebook, along with bloggers on the internet, Yahoo bulletin boards, and the movie Stock Shock. The news media is also to blame for what has taken place in this country — including the near-collapse of Wall Street and the banking industry.
There are many things to point fingers at or place the blame on, and I can think of a few off-hand that I would like to cover — the first being Wall Street’s regulation changes. I am no expert — I am not even a writer — but decided to tell this story since the business news media was not telling it. These Wall Street regulation changes contributed to the aforementioned problems in many ways, with the first being the removal of fractions in stock pricing. On January 29, 2001, the New York Stock Exchange, or NYSE, went to four-decimal-place trading. On March 12, 2001, the National Association of Securities Dealers Automated Quotation, or NASDAQ, followed suit. This new rule had the best of intentions as we headed toward the computer and digital world, but over time it was manipulated and companies like Goldman Sachs figured out how to take advantage of the new system. I am not sure how it happened, whether it was lobbied for years or what — but along came the biggest mistake of all with the elimination of the uptick rule in July of 2007. This rule had been implemented after the great depression, and had been in place since 1938. How could the Securities and Exchange Commission, or SEC, abolish a rule that had been in place for close to 70 years, and had worked? Put these two changes together, and you get a simple equation: greed plus corruption equals recession.
Reports have been released on the web that Goldman Sachs made over 100 million dollars per day in 46 out of 64 trading days in Fiscal Year 2009, second quarter (April, May and June). Let me say that again. They made over 100 million dollars per day, and are still doing it as I write this letter today. But the question remains, how did they do it? There has been no report of this by any of the news media. How can this be? This corruption is 100 times the gravity of the Bernie Madoff story, and yet there has been no coverage by CNBC or Bloomberg News. Why? Goldman Sachs, upon Wall Street transitioning to fractions and the abolishment of the uptick rule, designed secret software and used this software to gain an advantage on every potential investor. Basically, Goldman Sachs became a Las Vegas poker dealer in New York City on Wall Street, turning profits on investors every trade with their super-fast computers and software.
Richard Keane August 26th, 2009 Revised version

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