Michael Lewis: Did Goldman Sachs Overstep in Criminally Charging Its Ex-Programmer?
A month after ace programmer Sergey Aleynikov left Goldman Sachs, he was arrested. Exactly what he’d done neither the F.B.I., which interrogated him, nor the jury, which convicted him a year later, seemed to understand. But Goldman had accused him of stealing computer code, and the 41-year-old father of three was sentenced to eight years in federal prison. Investigating Aleynikov’s case, Michael Lewis holds a second trial.
To Sergey Aleynikov’s new way of thinking, every American could benefit from some time in jail, but in the event that you are yourself actually arrested and sent away, “there are certain practical aspects to keep in mind.” First, dress warmly. Detention centers tend to be freezing cold, even in summer, and so if you happen to be wearing shorts or short sleeves you’re in for a spectacularly unhappy night. Second, carry no cash. “If you have money, they charge you a convenience fee,” he explains. “If you don’t have it, they don’t charge you. The less money you have on you, the better.” Third, memorize a couple of emergency contact phone numbers. On the night of his first arrest he discovered he didn’t actually know his wife’s cell-phone number. He’d always phoned her by name from his cell phone’s address book, but his phone was one of the first things they’d taken from him.
The fourth, and final, rule was by far the most important: Don’t say a word to government officials. “The reason you don’t,” he says, “is that, if you do, they can place an agent on a witness stand and he can say anything.”
On the night of July 3, 2009, as he came off a flight from Chicago to Newark, New Jersey, he was totally unprepared, because he’d never imagined himself as the sort of person who might commit a crime. He worked too much and took only the vaguest interest in his fellow human beings, but, up to the moment of his arrest, Aleynikov had no sense that there was anything wrong with him or his situation. On the surface, his life had never been better: his third child had just been born, he had a new job at a hedge fund that paid him a million dollars a year, and he’d just moved into a big new house of his own design that he thought of as the perfect home. He’d come to America 20 years ago with little English and less money. Now he was living the dream.
For much of the flight from Chicago he’d slept. Leaving the plane he had noticed three men in dark suits, waiting in the alcove of the Jetway reserved for baby strollers and wheelchairs. They confirmed his identity, explained they were from the F.B.I., handcuffed him, and walled him off from the other passengers. This last act was no great feat. Serge was six feet tall but weighed roughly 130 pounds: to hide him you needed only to turn him sideways. He resisted none of these actions, but he was genuinely bewildered. The men in black refused to tell him his crime. He tried to figure it out. His first guess was that they’d gotten him mixed up with some other Sergey Aleynikov. Then it occurred to him that his new employer, the legendary high-frequency trader Misha Malyshev, might have done something shady. Wrong on both counts. It wasn’t until the plane had emptied and they’d escorted him into Newark Airport that they told him his crime: stealing computer code owned by Goldman Sachs.
The agent in charge of the case, Michael McSwain, was fairly new to law enforcement. Oddly enough, he’d been a currency trader on the Chicago Mercantile Exchange for 12 years. He’d ended his career on Wall Street the same year, 2007, that Serge was beginning his. McSwain marched Serge into a black town car and drove him to the F.B.I. building in Lower Manhattan. After making a show of stashing his gun outside, Serge says, McSwain led him into a tiny interrogation room, handcuffed him to a rod on the wall, and, finally, read him his Miranda rights.
Then he explained what he knew, or thought he knew: in April 2009, Serge had accepted a job at a new high-frequency-trading shop called Teza Technologies, but had remained at Goldman for the next six weeks, until June 5, during which time he sent himself, through a so-called “subversion repository,” 32 megabytes of source code from Goldman’s high-frequency stock-trading system. The Web site Serge had used (which has the word “subversion” in its name) as well as the location of its server (Germany) McSwain clearly found highly suspicious. He also seemed to think it significant that Serge had used a site not blocked by Goldman Sachs, even after Serge tried to explain to him that Goldman did not block any sites used by its programmers, but merely blocked its employees from porn and social-media sites and suchlike. Finally, the F.B.I. agent wanted him to admit that he had erased his “bash history”—that is, the commands he had typed into his own Goldman computer keyboard. Serge tried to explain why he had done this, but McSwain had no interest in his story. “The way he did it seemed nefarious,” the F.B.I. agent would later testify.
All of which was true, as far as it went, but, to Serge, that didn’t seem very far. “I thought it was like, crazy, really,” he says. “He was stringing these computer terms together in ways that made no sense. He didn’t seem to know anything about high-frequency trading or source code.” For instance, Serge had no idea where the “subversion repository” was physically located. It was just a place on the Internet used by developers to store the code they were working on. “The whole point of the Internet is to abstract the physical location of the server from its logical address.” To Serge, McSwain sounded like a man repeating phrases that he’d heard from others but that, to him, actually meant nothing. “There is a game in Russia called ‘Phone Book’ ” (like the American game Telephone), he says. “It felt like he was playing that.”
What Serge did not yet know was that Goldman had discovered his downloads just a few days earlier, months after he’d made the first of them. They’d called the F.B.I. in haste, just two days before, and then put their agent through what amounted to a crash course on high-frequency trading and computer programming. McSwain later conceded that he didn’t seek out independent expert advice to study the code Serge Aleynikov had taken. (“I relied on statements from Goldman employees.”) He himself had no idea of the value of the stolen code (“Representatives of Goldman told me it was worth a lot of money”) or if any of it was actually all that special (he based his belief that the code contained trade secrets on “representations made by members of Goldman Sachs”). The agent noted that the Goldman files were on both the personal computer and the thumb drive he’d taken from Serge at Newark Airport. (But virtually none of those files had been opened. If they were so important, why hadn’t Serge looked at them in the month since he’d left Goldman?) The F.B.I.’s investigation before the arrest consisted of trusting Goldman’s explanation of some extremely complicated stuff, and 48 hours after Goldman called the F.B.I., Serge was arrested.
On the night of the arrest—without an arrest warrant—Serge waived his right to call a lawyer. He phoned his wife and told her what had happened and that a bunch of F.B.I. agents were on the way to their home to seize their computers, and to please let them in—though they had no search warrant, either. Then he sat down and politely tried to clear up the F.B.I. agent’s confusion. “How could [the agent] figure out if this was a theft if he didn’t understand what was taken?” Serge recalls having asked himself. What he’d done, in his view, was trivial; what he stood accused of—violating both the Economic Espionage Act of 1996 and the National Stolen Property Act—did not sound trivial at all. Still, he thought, if the agent understood how computers and the high-frequency-trading business actually worked, the matter would be quickly cleared up. “The reason I was explaining it to him was to show that there was nothing there,” Serge says. “He was completely not interested in the content of what I am saying. He just kept saying to me, ‘If you tell me everything, I’ll talk to the judge, and he’ll go easy on you.’ It appeared they had a very strong bias from the very beginning. They had goals they wanted to fulfill. The goal was to obtain an immediate confession.” (The F.B.I. declined to comment on Aleynikov’s case.)
The fourth, and final, rule was by far the most important: Don’t say a word to government officials. “The reason you don’t,” he says, “is that, if you do, they can place an agent on a witness stand and he can say anything.”
On the night of July 3, 2009, as he came off a flight from Chicago to Newark, New Jersey, he was totally unprepared, because he’d never imagined himself as the sort of person who might commit a crime. He worked too much and took only the vaguest interest in his fellow human beings, but, up to the moment of his arrest, Aleynikov had no sense that there was anything wrong with him or his situation. On the surface, his life had never been better: his third child had just been born, he had a new job at a hedge fund that paid him a million dollars a year, and he’d just moved into a big new house of his own design that he thought of as the perfect home. He’d come to America 20 years ago with little English and less money. Now he was living the dream.
For much of the flight from Chicago he’d slept. Leaving the plane he had noticed three men in dark suits, waiting in the alcove of the Jetway reserved for baby strollers and wheelchairs. They confirmed his identity, explained they were from the F.B.I., handcuffed him, and walled him off from the other passengers. This last act was no great feat. Serge was six feet tall but weighed roughly 130 pounds: to hide him you needed only to turn him sideways. He resisted none of these actions, but he was genuinely bewildered. The men in black refused to tell him his crime. He tried to figure it out. His first guess was that they’d gotten him mixed up with some other Sergey Aleynikov. Then it occurred to him that his new employer, the legendary high-frequency trader Misha Malyshev, might have done something shady. Wrong on both counts. It wasn’t until the plane had emptied and they’d escorted him into Newark Airport that they told him his crime: stealing computer code owned by Goldman Sachs.
The agent in charge of the case, Michael McSwain, was fairly new to law enforcement. Oddly enough, he’d been a currency trader on the Chicago Mercantile Exchange for 12 years. He’d ended his career on Wall Street the same year, 2007, that Serge was beginning his. McSwain marched Serge into a black town car and drove him to the F.B.I. building in Lower Manhattan. After making a show of stashing his gun outside, Serge says, McSwain led him into a tiny interrogation room, handcuffed him to a rod on the wall, and, finally, read him his Miranda rights.
Then he explained what he knew, or thought he knew: in April 2009, Serge had accepted a job at a new high-frequency-trading shop called Teza Technologies, but had remained at Goldman for the next six weeks, until June 5, during which time he sent himself, through a so-called “subversion repository,” 32 megabytes of source code from Goldman’s high-frequency stock-trading system. The Web site Serge had used (which has the word “subversion” in its name) as well as the location of its server (Germany) McSwain clearly found highly suspicious. He also seemed to think it significant that Serge had used a site not blocked by Goldman Sachs, even after Serge tried to explain to him that Goldman did not block any sites used by its programmers, but merely blocked its employees from porn and social-media sites and suchlike. Finally, the F.B.I. agent wanted him to admit that he had erased his “bash history”—that is, the commands he had typed into his own Goldman computer keyboard. Serge tried to explain why he had done this, but McSwain had no interest in his story. “The way he did it seemed nefarious,” the F.B.I. agent would later testify.
All of which was true, as far as it went, but, to Serge, that didn’t seem very far. “I thought it was like, crazy, really,” he says. “He was stringing these computer terms together in ways that made no sense. He didn’t seem to know anything about high-frequency trading or source code.” For instance, Serge had no idea where the “subversion repository” was physically located. It was just a place on the Internet used by developers to store the code they were working on. “The whole point of the Internet is to abstract the physical location of the server from its logical address.” To Serge, McSwain sounded like a man repeating phrases that he’d heard from others but that, to him, actually meant nothing. “There is a game in Russia called ‘Phone Book’ ” (like the American game Telephone), he says. “It felt like he was playing that.”
What Serge did not yet know was that Goldman had discovered his downloads just a few days earlier, months after he’d made the first of them. They’d called the F.B.I. in haste, just two days before, and then put their agent through what amounted to a crash course on high-frequency trading and computer programming. McSwain later conceded that he didn’t seek out independent expert advice to study the code Serge Aleynikov had taken. (“I relied on statements from Goldman employees.”) He himself had no idea of the value of the stolen code (“Representatives of Goldman told me it was worth a lot of money”) or if any of it was actually all that special (he based his belief that the code contained trade secrets on “representations made by members of Goldman Sachs”). The agent noted that the Goldman files were on both the personal computer and the thumb drive he’d taken from Serge at Newark Airport. (But virtually none of those files had been opened. If they were so important, why hadn’t Serge looked at them in the month since he’d left Goldman?) The F.B.I.’s investigation before the arrest consisted of trusting Goldman’s explanation of some extremely complicated stuff, and 48 hours after Goldman called the F.B.I., Serge was arrested.
On the night of the arrest—without an arrest warrant—Serge waived his right to call a lawyer. He phoned his wife and told her what had happened and that a bunch of F.B.I. agents were on the way to their home to seize their computers, and to please let them in—though they had no search warrant, either. Then he sat down and politely tried to clear up the F.B.I. agent’s confusion. “How could [the agent] figure out if this was a theft if he didn’t understand what was taken?” Serge recalls having asked himself. What he’d done, in his view, was trivial; what he stood accused of—violating both the Economic Espionage Act of 1996 and the National Stolen Property Act—did not sound trivial at all. Still, he thought, if the agent understood how computers and the high-frequency-trading business actually worked, the matter would be quickly cleared up. “The reason I was explaining it to him was to show that there was nothing there,” Serge says. “He was completely not interested in the content of what I am saying. He just kept saying to me, ‘If you tell me everything, I’ll talk to the judge, and he’ll go easy on you.’ It appeared they had a very strong bias from the very beginning. They had goals they wanted to fulfill. The goal was to obtain an immediate confession.” (The F.B.I. declined to comment on Aleynikov’s case.)
According to Serge, the chief obstacle to the F.B.I.’s ability to extract his confession, oddly, wasn’t his willingness to provide it but ignorance of what Serge was attempting to confess. “In the written statement he was making some very obvious mistakes, computer terms and so on,” recalls Serge. “I was saying, You know, this is not correct.” Serge patiently walked the agent through his actions until finally, at 1:43 in the morning, after five hours of discussion, McSwain sent a giddy one-line e-mail to the U.S. Attorney’s Office: “Holy crap he signed a confession.”
Two minutes later he dispatched Serge to a cell in the Metropolitan Detention Center. The prosecutor, Assistant U.S. Attorney Joseph Facciponti, argued that Serge Aleynikov should be denied bail, for he was a danger to the community and a flight risk, as he had in his possession computer code which in the wrong hands could be used “to manipulate markets in unfair ways.” (Goldman Sachs presumably used it to manipulate markets in fair ways.) The confession Serge had signed, scarred by phrases crossed-out and re-written by the F.B.I. agent, later would be presented by prosecutors to a jury as the work of a thief who was being cautious, even tricky, with his words. “That’s not what happened,” says Serge. “The document was being crafted by someone with no previous expertise in the matter.”
Serge Alyenikov’s signed confession was the last anyone heard from him, at least directly. He declined to speak to reporters or testify at his trial. He has a halting manner, a funny accent, a beard, and a physique that looks as if it had been painted by El Greco: in a lineup of people chosen randomly from the streets, he is the guy most likely to be identified as a Russian spy, or a character from an episode of the original Star Trek. In technical discussions he has a tendency to speak with extreme precision, which is great when he is dealing with fellow experts but mind-numbing to a lay audience. In the court of U.S. public opinion, he wasn’t well suited to defend himself, and so, on the advice of his attorney, Kevin Marino, he didn’t. He kept his long silence even after he was sentenced, without the possibility of parole, to eight years in a federal prison.
His problem with Russia was that its government wouldn’t allow him to study what he wanted to study. He wasn’t religious in any conventional sense, but he’d been born a Jew, which had been noted on his Russian passport to remind everyone of the fact. As a Jew he expected to be given especially difficult entrance exams to university, which, if he passed them, would grant him access to just one of two Moscow universities that were more accepting of Jews. He’d been willing to tolerate this state of affairs; however, as it happened, he’d also been born to program computers. He hadn’t laid hands on one until 1986, when he was already 16, but the first thing he’d done was to write a program. He’d instructed the computer to draw a picture of a sine wave. When the computer actually followed his instructions, he was hooked. What hooked him, he now says, was “its detailed orientation. The way it requires an ability to see the problem and tackle it from different angles. It’s not just like chess, but like solving a particular problem in chess. The more challenging problem is not to play chess but to write the code that will play chess.” He found that coding engaged him not just intellectually but also emotionally. “Writing a program is like giving birth to a child,” he says. “It is a creation. Even though it is technical, it is a work of art. You get this level of satisfaction.”
He applied to switch his major from mathematics to computer science, but the authorities forbade it. “That is what tipped me to accept the idea that perhaps Russia is not the best place for me,” he says. “When they wouldn’t allow me to study computer science.”
He arrived in New York City in 1991 and moved into a room at the 92nd Street Young Men’s and Young Women’s Hebrew Association, a sort of Jewish Y.M.C.A. Two things shocked him about his new city: the diversity of the people on the streets and the fantastic range of foods in the grocery stores. He took photographs of the rows and rows of sausages for sale and mailed them to his mother in Moscow. “I’d never seen so many sausages,” he says. But once he’d marveled at the American cornucopia, he stepped back from it all and wondered just how necessary all of this food was. He read books about fasting and the effects of various highly restrictive diets. “I decided to look at it a little bit further and ask what is beneficial and what is not,” he recalls. In the end he became a finicky vegetarian. “I don’t think all the energy you gain comes from food,” he says. “I think it comes from your environment.”
He had arrived in America with no money at all, and no real idea how to get it. He took a course at the 92nd Street Y on how to apply for a job. “It was quite frightening,” he says. “I didn’t speak English, really, and a résumé was a totally alien concept.” His first interviewer asked him to tell him about himself. “To a Russian mentality, that question means ‘Where are you born?’ ‘Who are your siblings?’ ” Serge described for the man at great length his family tree—and nothing else. “He tells me I will hear from him again. I never do.” But he had an obvious talent with computers and soon found a job operating them, for $8.75 an hour, in a New Jersey medical center. From the medical center he landed a better job in the Rutgers computer-science department, where they gave him a scholarship to pursue a master’s degree. After Rutgers he spent a few years working at Internet start-ups until, in 1998, he received a job offer from a big New Jersey telecom company called IDT. For the next decade he designed computer systems and wrote the code to route millions of phone calls each day to the cheapest available phone lines. When he joined the company it had 500 employees; by 2006 it had 5,000, and he was its star technologist. That year a headhunter called him and told him there was a booming demand for his particular skill—building software that parsed huge amounts of information at great speed—on Wall Street.
Serge knew nothing about Wall Street. The headhunter sent him a bunch of books about writing software on Wall Street, plus a primer on how to make it through a Wall Street job interview, and told him he could make a lot more than the $220,000 a year he was making at the telecom. Serge felt flattered, and liked the headhunter, but he read the books and decided Wall Street wasn’t for him. He enjoyed the technical challenges at the giant telecom and didn’t really feel the need to earn more money. A year later the headhunter called him again. By 2007, IDT was in financial trouble. His wife, Elina, was carrying their third child, and they would need to buy a bigger house. Serge agreed to interview with the Wall Street firm that especially wanted to meet him: Goldman Sachs.
At that moment, at least on the surface, he had the sort of life people are said to come to America for. He’d married a pretty fellow Russian immigrant, and started a family with her. They bought a two-bedroom red-brick house in Clifton, New Jersey, then traded up to a three-bedroom Cape-style house in Little Falls. They had a circle of Russians they called their friends. On the other hand, all Serge did was work, and his wife had no real clue what that work involved; they weren’t actually all that close to each other. He didn’t encourage people to get to know him well, nor did he exhibit a great deal of interest in getting to know them. He was acquiring a lot of possessions in which he had very little interest. The lawn in Clifton was a fair example of the general problem. When he’d gone hunting for his first house he’d been enamored of the idea of having his very own lawn. In Moscow such a thing was unheard of. But the moment he had one, he regretted it. (“A pain in the butt to mow.”) A Russian writer named Masha Leder, who knew the Aleynikovs as well as anyone, thought Serge an exceptionally intellectually gifted but otherwise typical Russian computer programmer, for whom technical problems became an excuse not to deal with the messy world around him. “All of Serge’s life before he got into prison was some kind of mirage,” she says. “Or a dream. He was not aware of things. He liked slender girls who loved to dance. He married a girl and manages to have three kids with her before he figures out he doesn’t really know her. He was working his ass off, and she would spend the money he was making. He would come home, and she would cook him vegetarian dishes. He was serviced, basically.”
Two minutes later he dispatched Serge to a cell in the Metropolitan Detention Center. The prosecutor, Assistant U.S. Attorney Joseph Facciponti, argued that Serge Aleynikov should be denied bail, for he was a danger to the community and a flight risk, as he had in his possession computer code which in the wrong hands could be used “to manipulate markets in unfair ways.” (Goldman Sachs presumably used it to manipulate markets in fair ways.) The confession Serge had signed, scarred by phrases crossed-out and re-written by the F.B.I. agent, later would be presented by prosecutors to a jury as the work of a thief who was being cautious, even tricky, with his words. “That’s not what happened,” says Serge. “The document was being crafted by someone with no previous expertise in the matter.”
Serge Alyenikov’s signed confession was the last anyone heard from him, at least directly. He declined to speak to reporters or testify at his trial. He has a halting manner, a funny accent, a beard, and a physique that looks as if it had been painted by El Greco: in a lineup of people chosen randomly from the streets, he is the guy most likely to be identified as a Russian spy, or a character from an episode of the original Star Trek. In technical discussions he has a tendency to speak with extreme precision, which is great when he is dealing with fellow experts but mind-numbing to a lay audience. In the court of U.S. public opinion, he wasn’t well suited to defend himself, and so, on the advice of his attorney, Kevin Marino, he didn’t. He kept his long silence even after he was sentenced, without the possibility of parole, to eight years in a federal prison.
Red Square
Serge Aleynikov wasn’t the world’s most eager immigrant to America, or, for that matter, to Wall Street. He’d left Russia in 1991, two years after the fall of the Berlin Wall, but more in sadness than in hope. “When I was 19, I haven’t imagined leaving it,” he says. “I was very patriotic about Russia. I cried when Brezhnev died. And I always hated English. I thought I was completely incapable of learning languages.”His problem with Russia was that its government wouldn’t allow him to study what he wanted to study. He wasn’t religious in any conventional sense, but he’d been born a Jew, which had been noted on his Russian passport to remind everyone of the fact. As a Jew he expected to be given especially difficult entrance exams to university, which, if he passed them, would grant him access to just one of two Moscow universities that were more accepting of Jews. He’d been willing to tolerate this state of affairs; however, as it happened, he’d also been born to program computers. He hadn’t laid hands on one until 1986, when he was already 16, but the first thing he’d done was to write a program. He’d instructed the computer to draw a picture of a sine wave. When the computer actually followed his instructions, he was hooked. What hooked him, he now says, was “its detailed orientation. The way it requires an ability to see the problem and tackle it from different angles. It’s not just like chess, but like solving a particular problem in chess. The more challenging problem is not to play chess but to write the code that will play chess.” He found that coding engaged him not just intellectually but also emotionally. “Writing a program is like giving birth to a child,” he says. “It is a creation. Even though it is technical, it is a work of art. You get this level of satisfaction.”
He applied to switch his major from mathematics to computer science, but the authorities forbade it. “That is what tipped me to accept the idea that perhaps Russia is not the best place for me,” he says. “When they wouldn’t allow me to study computer science.”
He arrived in New York City in 1991 and moved into a room at the 92nd Street Young Men’s and Young Women’s Hebrew Association, a sort of Jewish Y.M.C.A. Two things shocked him about his new city: the diversity of the people on the streets and the fantastic range of foods in the grocery stores. He took photographs of the rows and rows of sausages for sale and mailed them to his mother in Moscow. “I’d never seen so many sausages,” he says. But once he’d marveled at the American cornucopia, he stepped back from it all and wondered just how necessary all of this food was. He read books about fasting and the effects of various highly restrictive diets. “I decided to look at it a little bit further and ask what is beneficial and what is not,” he recalls. In the end he became a finicky vegetarian. “I don’t think all the energy you gain comes from food,” he says. “I think it comes from your environment.”
He had arrived in America with no money at all, and no real idea how to get it. He took a course at the 92nd Street Y on how to apply for a job. “It was quite frightening,” he says. “I didn’t speak English, really, and a résumé was a totally alien concept.” His first interviewer asked him to tell him about himself. “To a Russian mentality, that question means ‘Where are you born?’ ‘Who are your siblings?’ ” Serge described for the man at great length his family tree—and nothing else. “He tells me I will hear from him again. I never do.” But he had an obvious talent with computers and soon found a job operating them, for $8.75 an hour, in a New Jersey medical center. From the medical center he landed a better job in the Rutgers computer-science department, where they gave him a scholarship to pursue a master’s degree. After Rutgers he spent a few years working at Internet start-ups until, in 1998, he received a job offer from a big New Jersey telecom company called IDT. For the next decade he designed computer systems and wrote the code to route millions of phone calls each day to the cheapest available phone lines. When he joined the company it had 500 employees; by 2006 it had 5,000, and he was its star technologist. That year a headhunter called him and told him there was a booming demand for his particular skill—building software that parsed huge amounts of information at great speed—on Wall Street.
Serge knew nothing about Wall Street. The headhunter sent him a bunch of books about writing software on Wall Street, plus a primer on how to make it through a Wall Street job interview, and told him he could make a lot more than the $220,000 a year he was making at the telecom. Serge felt flattered, and liked the headhunter, but he read the books and decided Wall Street wasn’t for him. He enjoyed the technical challenges at the giant telecom and didn’t really feel the need to earn more money. A year later the headhunter called him again. By 2007, IDT was in financial trouble. His wife, Elina, was carrying their third child, and they would need to buy a bigger house. Serge agreed to interview with the Wall Street firm that especially wanted to meet him: Goldman Sachs.
At that moment, at least on the surface, he had the sort of life people are said to come to America for. He’d married a pretty fellow Russian immigrant, and started a family with her. They bought a two-bedroom red-brick house in Clifton, New Jersey, then traded up to a three-bedroom Cape-style house in Little Falls. They had a circle of Russians they called their friends. On the other hand, all Serge did was work, and his wife had no real clue what that work involved; they weren’t actually all that close to each other. He didn’t encourage people to get to know him well, nor did he exhibit a great deal of interest in getting to know them. He was acquiring a lot of possessions in which he had very little interest. The lawn in Clifton was a fair example of the general problem. When he’d gone hunting for his first house he’d been enamored of the idea of having his very own lawn. In Moscow such a thing was unheard of. But the moment he had one, he regretted it. (“A pain in the butt to mow.”) A Russian writer named Masha Leder, who knew the Aleynikovs as well as anyone, thought Serge an exceptionally intellectually gifted but otherwise typical Russian computer programmer, for whom technical problems became an excuse not to deal with the messy world around him. “All of Serge’s life before he got into prison was some kind of mirage,” she says. “Or a dream. He was not aware of things. He liked slender girls who loved to dance. He married a girl and manages to have three kids with her before he figures out he doesn’t really know her. He was working his ass off, and she would spend the money he was making. He would come home, and she would cook him vegetarian dishes. He was serviced, basically.”
And then Wall Street called. Goldman Sachs put Serge through a series of telephone interviews, then brought him in for a long day of face-to-face interviews. These he found extremely tense, even a bit weird. “I was not used to seeing people put so much energy into evaluating other people,” he said. One after another, a dozen Goldman employees tried to stump him with brainteasers, computer puzzles, math problems, and even some light physics. It must have become clear to Goldman (as it was to Serge) that he knew more about most of the things he was being asked than did his interviewers. At the end of the first day, Goldman invited him back for a second day. He went home and thought it over: he wasn’t all that sure he wanted to work at Goldman Sachs. “But the next morning I had a competitive feeling,” he says. “I should conclude it and try to pass it because it’s a big challenge.”
He’d been surprised to find that in at least one way he fit in: more than half the programmers at Goldman were Russians. Russians had a reputation for being the best programmers on Wall Street, and Serge thought he knew why: they had been forced to learn programming without the luxury of endless computer time. “In Russia, time on the computer was measured in minutes,” he says. “When you write a program, you are given a tiny time slot to make it work. Consequently we learned to write the code in a way that minimized the amount of debugging. And so you had to think about it a lot before you committed it to paper. . . . The ready availability of computer time creates this mode of working where you just have an idea and type it and maybe erase it 10 times. Good Russian programmers, they tend to have had that one experience at some time in the past: the experience of limited access to computer time.”
He returned for another round of Goldman’s grilling, which ended in the office of one of the high-frequency traders, another Russian, named Alexander Davidovich. A managing director, he had just two final questions for Serge, both designed to test his ability to solve problems.
The first: Is 3,599 a prime number?
Serge quickly saw there was something strange about 3,599: it was very close to 3,600. He jotted down the following equations: 3599 = (3600 – 1) = (602 – 12) = (60 – 1) (60 + 1) = 59 times 61. Not a prime number.
The problem wasn’t that difficult, but, as he put it, “it was harder to solve the problem when you are anticipated to solve it quickly.” It might have taken him as long as two minutes to finish. The second question the Goldman managing director asked him was more involved—and involving. He described for Serge a room, a rectangular box, and gave him its three dimensions. “He says there is a spider on the floor and gives me its coordinates. There is also a fly on the ceiling, and he gives me its coordinates as well. Then he asked the question: Calculate the shortest distance the spider can take to reach the fly.” The spider can’t fly or swing; it can only walk on surfaces. The shortest path between two points was a straight line, and so, Serge figured, it was a matter of unfolding the box, turning a three-dimensional object into a one-dimensional surface, then using the Pythagorean theorem to calculate the distances. It took him several minutes to work it all out; when he was done, Davidovich offered him a job at Goldman Sachs. His starting salary plus bonus came to $270,000.
The fragmentation of the American stock market was fueled, in part, by a rule created in 2007 by the S.E.C. The rule, known inelegantly as Reg NMS, was designed to protect investors from their brokers. Instead it wound up creating, as such rules often do, new ways for brokers to abuse their clients. Reg NMS requires stockbrokers to route their clients’ orders to whichever exchange offers the best price. For example: if you tell your Goldman Sachs broker to buy a million shares of Apple, and Apple shares are being offered at $400 a share on NASDAQ and $401 inside the Goldman Sachs dark pool, Goldman is now required to send your order first to NASDAQ. (You might think that brokers might do this naturally to please their clients. Think again.)
For reasons not entirely obvious (yet another question for another day), the new rule stimulated a huge amount of stock-market trading. Much of the new volume was generated not by old-fashioned investors but by extremely fast computers controlled by high-frequency-trading firms, like Getco and Citadel and D. E. Shaw and Renaissance Capital, and the high-frequency-trading divisions of big Wall Street firms, especially Goldman Sachs. Essentially, the more places there were to trade stocks, the greater the opportunity there was for high-frequency traders to interpose themselves between buyers on one exchange and sellers on another. This was perverse. The initial promise of computer technology was to remove the intermediary from the financial market, or at least reduce the amount he could scalp from that market. The reality has turned out to be a boom in financial intermediation and an estimated take for Wall Street of somewhere between $10 and $20 billion a year, depending on whose estimates you wish to believe. As high-frequency-trading firms aren’t required to disclose their profits (with the exception of public firms, like Knight, which have disclosed profits in the past), and big banks like Goldman that engage in the practice are assumed to hide their own profits on their balance sheets, no one really knows just how much money is being made. But when a single high-frequency trader is paid $75 million in cash for a single year of trading (as was Misha Malyshev in 2008, when he worked at Citadel) and then quits because he is “dissatisfied,” a new beast is afoot.
The combination of new market rules and new technology was turning the stock market into, in effect, a war of robots. The robots were absurdly fast: they could execute tens of thousands of stock-market transactions in the time it took a human trader to blink his eye. The games they played were often complicated, but one aspect of them was simple and clear: the faster the robot, the more likely it was to make money at the expense of the relative sloth of others in the market. There was easy money to be made, for instance, from being able to respond more quickly than the rest of the market to changes in the supply and demand for a given stock. There was not-so-easy money to be made running crude strategies premised on the correlation between different securities. For example, assume the stock prices of Coke and Pepsi tend to move together; if you can see Coke’s stock popping higher and Pepsi has not yet responded, your robot might buy Pepsi before anyone else has processed what’s happened to Coke.
At any rate, in 2008, from the point of view of Goldman Sachs, the good news was that there were billions of new dollars to be made by stock-market intermediaries. The bad news was that Goldman Sachs wasn’t yet making much of it—or it was doing a very good job of disguising its profits. At the end of that year they informed their high-frequency-trading computer programmers that their trading unit had netted roughly $300 million. That same year the high-frequency-trading division of a single hedge fund, Citadel, made $1.2 billion. A headhunter who sat in the middle of the market, and saw what firms were paying for geek talent, says that “Goldman had started to figure it out, but they really hadn’t figured it out. They weren’t Top 10.”
He’d been surprised to find that in at least one way he fit in: more than half the programmers at Goldman were Russians. Russians had a reputation for being the best programmers on Wall Street, and Serge thought he knew why: they had been forced to learn programming without the luxury of endless computer time. “In Russia, time on the computer was measured in minutes,” he says. “When you write a program, you are given a tiny time slot to make it work. Consequently we learned to write the code in a way that minimized the amount of debugging. And so you had to think about it a lot before you committed it to paper. . . . The ready availability of computer time creates this mode of working where you just have an idea and type it and maybe erase it 10 times. Good Russian programmers, they tend to have had that one experience at some time in the past: the experience of limited access to computer time.”
He returned for another round of Goldman’s grilling, which ended in the office of one of the high-frequency traders, another Russian, named Alexander Davidovich. A managing director, he had just two final questions for Serge, both designed to test his ability to solve problems.
The first: Is 3,599 a prime number?
Serge quickly saw there was something strange about 3,599: it was very close to 3,600. He jotted down the following equations: 3599 = (3600 – 1) = (602 – 12) = (60 – 1) (60 + 1) = 59 times 61. Not a prime number.
The problem wasn’t that difficult, but, as he put it, “it was harder to solve the problem when you are anticipated to solve it quickly.” It might have taken him as long as two minutes to finish. The second question the Goldman managing director asked him was more involved—and involving. He described for Serge a room, a rectangular box, and gave him its three dimensions. “He says there is a spider on the floor and gives me its coordinates. There is also a fly on the ceiling, and he gives me its coordinates as well. Then he asked the question: Calculate the shortest distance the spider can take to reach the fly.” The spider can’t fly or swing; it can only walk on surfaces. The shortest path between two points was a straight line, and so, Serge figured, it was a matter of unfolding the box, turning a three-dimensional object into a one-dimensional surface, then using the Pythagorean theorem to calculate the distances. It took him several minutes to work it all out; when he was done, Davidovich offered him a job at Goldman Sachs. His starting salary plus bonus came to $270,000.
Full Speed Ahead
He’d joined Goldman at an interesting moment in the history of both the firm and Wall Street. By mid-2007, Goldman’s bond-trading department was aiding and abetting a global financial crisis, most infamously by helping the Greek government to rig its books and disguise its debt, and by designing subprime-mortgage securities to fail, so they might make money by betting against them. At the same time, Goldman’s equities department was adapting to radical changes in the U.S. stock market—just as that market was about to crash. A once sleepy oligopoly dominated by NASDAQ and the New York Stock Exchange was rapidly turning into something else. There were now 10 public stock exchanges in New Jersey alone, all trading the same stocks. Within a few years there would be more than 40 “dark pools,” or private exchanges, one of them owned by Goldman Sachs, also trading the same stocks. (Why the world needed 50 places, most of them in New Jersey, in which to buy and sell shares in Apple Inc. is a question for another day.)The fragmentation of the American stock market was fueled, in part, by a rule created in 2007 by the S.E.C. The rule, known inelegantly as Reg NMS, was designed to protect investors from their brokers. Instead it wound up creating, as such rules often do, new ways for brokers to abuse their clients. Reg NMS requires stockbrokers to route their clients’ orders to whichever exchange offers the best price. For example: if you tell your Goldman Sachs broker to buy a million shares of Apple, and Apple shares are being offered at $400 a share on NASDAQ and $401 inside the Goldman Sachs dark pool, Goldman is now required to send your order first to NASDAQ. (You might think that brokers might do this naturally to please their clients. Think again.)
For reasons not entirely obvious (yet another question for another day), the new rule stimulated a huge amount of stock-market trading. Much of the new volume was generated not by old-fashioned investors but by extremely fast computers controlled by high-frequency-trading firms, like Getco and Citadel and D. E. Shaw and Renaissance Capital, and the high-frequency-trading divisions of big Wall Street firms, especially Goldman Sachs. Essentially, the more places there were to trade stocks, the greater the opportunity there was for high-frequency traders to interpose themselves between buyers on one exchange and sellers on another. This was perverse. The initial promise of computer technology was to remove the intermediary from the financial market, or at least reduce the amount he could scalp from that market. The reality has turned out to be a boom in financial intermediation and an estimated take for Wall Street of somewhere between $10 and $20 billion a year, depending on whose estimates you wish to believe. As high-frequency-trading firms aren’t required to disclose their profits (with the exception of public firms, like Knight, which have disclosed profits in the past), and big banks like Goldman that engage in the practice are assumed to hide their own profits on their balance sheets, no one really knows just how much money is being made. But when a single high-frequency trader is paid $75 million in cash for a single year of trading (as was Misha Malyshev in 2008, when he worked at Citadel) and then quits because he is “dissatisfied,” a new beast is afoot.
The combination of new market rules and new technology was turning the stock market into, in effect, a war of robots. The robots were absurdly fast: they could execute tens of thousands of stock-market transactions in the time it took a human trader to blink his eye. The games they played were often complicated, but one aspect of them was simple and clear: the faster the robot, the more likely it was to make money at the expense of the relative sloth of others in the market. There was easy money to be made, for instance, from being able to respond more quickly than the rest of the market to changes in the supply and demand for a given stock. There was not-so-easy money to be made running crude strategies premised on the correlation between different securities. For example, assume the stock prices of Coke and Pepsi tend to move together; if you can see Coke’s stock popping higher and Pepsi has not yet responded, your robot might buy Pepsi before anyone else has processed what’s happened to Coke.
At any rate, in 2008, from the point of view of Goldman Sachs, the good news was that there were billions of new dollars to be made by stock-market intermediaries. The bad news was that Goldman Sachs wasn’t yet making much of it—or it was doing a very good job of disguising its profits. At the end of that year they informed their high-frequency-trading computer programmers that their trading unit had netted roughly $300 million. That same year the high-frequency-trading division of a single hedge fund, Citadel, made $1.2 billion. A headhunter who sat in the middle of the market, and saw what firms were paying for geek talent, says that “Goldman had started to figure it out, but they really hadn’t figured it out. They weren’t Top 10.”
The simple reason for this was that Goldman’s robots were slow. A lot of the moneymaking strategies were of the winner-take-all variety. When every player is trying to buy Pepsi after Coke’s stock has popped, the player whose computers can take in data and spit out the obvious response to it first gets all the money. In the various races being run, Goldman was seldom first. That is why they had sought out Serge Aleynikov: to improve the speed of their system.
There were many problems with Goldman’s system, in Serge’s view. It wasn’t so much a system as an amalgamation. “The code-development practices in IDT were much more organized and up-to-date than at Goldman,” he says. Goldman had bought the core of its system nine years earlier in the acquisition of one of the early electronic-trading firms, called Hull Trading. The massive amounts of old software (Serge guessed that the entire platform had as many as 60 million lines of code in it) and nine years of fixes to it had created the computer equivalent of a giant rubber-band ball. When one of the rubber bands popped, Serge was expected to find it and fix it.
One small example of the kind of problems Serge found: Goldman’s trading on the NASDAQ exchange. Goldman owned the lone (unmarked) building directly across the street from NASDAQ in Carteret, New Jersey. The building housed Goldman’s dark pool. When Serge arrived, 40,000 messages per second were flying back and forth between computers inside the two buildings. Proximity, he assumed, must offer Goldman Sachs some advantage—after all, why else buy the only building anywhere near the exchange? But when he looked into it he found that, to cross the street from Goldman to NASDAQ, a signal took five milliseconds, or nearly as much time as it took a signal to travel on the fastest network from Chicago to New York. “The theoretical limit [of sending a signal] from Chicago to New York is something like seven milliseconds,” says Serge. “Everything more than that is the friction caused by man.” The friction could be caused by physical distance—say, if the signal moving across the street in Carteret, New Jersey, traveled in something less direct than a straight line. It could be caused by computer hardware. (The top high-frequency-trading firms chuck out their old gear and buy new stuff every few months.) But it could also be caused by slow, clunky software—and that was Goldman’s problem. Their high-frequency-trading platform was designed, in typical Goldman style, as a centralized hub-and-spoke system. Every signal sent was required to pass through the mother ship in Manhattan before it went back out into the marketplace. “But the latency [the five milliseconds] wasn’t mainly due to the physical distance,” says Serge. “It was because the traffic was going through layers and layers of corporate switching equipment.”
After a few months working on the 42nd floor of One New York Plaza (at the time the site of Goldman’s main equity trading floor and once the site of the old Salomon Brothers trading floor) Serge came to the conclusion that the best thing they could do with Goldman’s high-frequency-trading platform was to scrap it altogether and build a new one from scratch. His bosses weren’t interested. “The business model of Goldman Sachs was if there is an opportunity to make money right away, let’s do that,” he says. “But if there was something long-term, they weren’t that interested.” Something would change in the stock market (an exchange would introduce a new, complicated rule, for instance), and that change would create an immediate opportunity to make money. “They’d want to do it immediately,” says Serge. “But if you think about it, it’s just patching the existing system, constantly. The existing code base becomes an elephant that’s difficult to maintain.”
That is how he spent the vast majority of his two years at Goldman, maintaining the elephant. Oddly, he found his job more interesting than the stock-market trading he was enabling. “I think the engineering problems are much more interesting than the business problems,” he says. “Finance is just who gets money. Does it wind up in the right pocket or the left pocket? It just so happens that the companies that make money are the companies like Goldman Sachs. You can’t really win in that game unless you are one of these people who is receiving the hints.” He understood that Goldman’s quants were forever dreaming up new trading strategies, in the form of algorithms, for the robots to execute, and that these traders were meant to be extremely shrewd. He grasped further that “all their algorithms are premised on some sort of prediction—predicting something one second into the future.” But you needed only to have observed the 2008 stock-market crash from inside Goldman Sachs, as Serge had, to see that what seemed predictable often was not. Day after volatile day in September 2008, Goldman’s supposedly brilliant traders were losing tens of millions of dollars. “All of the expectations didn’t work,” recalls Serge. “They thought they controlled the market, but it was an illusion. Everyone would come into work and were blown away by the fact that they couldn’t control anything at all. . . . Finance is a gambling game for people who enjoy gambling.”
Serge wasn’t a gambler, by nature. He preferred the deterministic world of programming to the pseudo-deterministic world of speculation, and he never fully grasped the connection between his work and the Goldman traders’. He knew they were obsessed with the speed he created for them, but he was never convinced the work he was doing to speed up their robots led to greater profits. “It wasn’t ever clear if we shaved off half a millisecond what the advantage would be,” he says. “We did studies, but they were imperfect and not conclusive.”
The obvious thing he did to make Goldman’s robots faster was exactly what he had done at IDT to enable millions of phone calls to find their cheapest route: he decentralized Goldman’s system. Rather than have signals travel from the various exchanges back to the Goldman hub, he set up separate mini Goldman hubs inside each of the exchanges. But most of his time was spent simply patching the old code. To do this he and the other Goldman programmers resorted, every day, to open-source software, available free to anyone for any purpose. The tools and components they used were not specifically designed for financial markets, but they could be adapted to repair Goldman’s plumbing.
Serge quickly discovered, to his surprise, that Goldman had a one-way relationship with open source. They took huge amounts of free software off the Web, but they did not return it after he had modified it, even when his modifications were very slight and of general rather than financial use. “Once I took some open-source components, repackaged them to come up with a component that was not even used at Goldman Sachs,” he says. “It was basically a way to make two computers look like one, so if one went down the other could jump in and perform the task.” He described the pleasure of his innovation this way: “It created something out of chaos. When you create something out of chaos, essentially, you reduce the entropy in the world.” He went to his boss, a fellow named Adam Schlesinger, and asked if he could release it back into open source, as was his inclination. “He said it was now Goldman’s property,” recalls Serge. “He was quite tense. When I mentioned it, it was very close to bonus time. And he didn’t want any disturbances.”
Open source was an idea that depended on collaboration and sharing, and Serge had a long history of contributing to it. He didn’t fully understand how Goldman could think it was O.K. to benefit so greatly from the work of others and then behave so selfishly toward them. “You don’t create intellectual property,” he said. “You create a program that does something.” But from then on, on instructions from Schlesinger, he treated everything on Goldman Sachs’s servers, even if it had just been transferred there from open source, as Goldman Sachs’s property. (At Serge’s trial Kevin Marino, his lawyer, flashed two pages of computer code: the original, with its open-source license on top, and a replica, with the open-source license stripped off and replaced by the Goldman Sachs license.)
There were many problems with Goldman’s system, in Serge’s view. It wasn’t so much a system as an amalgamation. “The code-development practices in IDT were much more organized and up-to-date than at Goldman,” he says. Goldman had bought the core of its system nine years earlier in the acquisition of one of the early electronic-trading firms, called Hull Trading. The massive amounts of old software (Serge guessed that the entire platform had as many as 60 million lines of code in it) and nine years of fixes to it had created the computer equivalent of a giant rubber-band ball. When one of the rubber bands popped, Serge was expected to find it and fix it.
One small example of the kind of problems Serge found: Goldman’s trading on the NASDAQ exchange. Goldman owned the lone (unmarked) building directly across the street from NASDAQ in Carteret, New Jersey. The building housed Goldman’s dark pool. When Serge arrived, 40,000 messages per second were flying back and forth between computers inside the two buildings. Proximity, he assumed, must offer Goldman Sachs some advantage—after all, why else buy the only building anywhere near the exchange? But when he looked into it he found that, to cross the street from Goldman to NASDAQ, a signal took five milliseconds, or nearly as much time as it took a signal to travel on the fastest network from Chicago to New York. “The theoretical limit [of sending a signal] from Chicago to New York is something like seven milliseconds,” says Serge. “Everything more than that is the friction caused by man.” The friction could be caused by physical distance—say, if the signal moving across the street in Carteret, New Jersey, traveled in something less direct than a straight line. It could be caused by computer hardware. (The top high-frequency-trading firms chuck out their old gear and buy new stuff every few months.) But it could also be caused by slow, clunky software—and that was Goldman’s problem. Their high-frequency-trading platform was designed, in typical Goldman style, as a centralized hub-and-spoke system. Every signal sent was required to pass through the mother ship in Manhattan before it went back out into the marketplace. “But the latency [the five milliseconds] wasn’t mainly due to the physical distance,” says Serge. “It was because the traffic was going through layers and layers of corporate switching equipment.”
After a few months working on the 42nd floor of One New York Plaza (at the time the site of Goldman’s main equity trading floor and once the site of the old Salomon Brothers trading floor) Serge came to the conclusion that the best thing they could do with Goldman’s high-frequency-trading platform was to scrap it altogether and build a new one from scratch. His bosses weren’t interested. “The business model of Goldman Sachs was if there is an opportunity to make money right away, let’s do that,” he says. “But if there was something long-term, they weren’t that interested.” Something would change in the stock market (an exchange would introduce a new, complicated rule, for instance), and that change would create an immediate opportunity to make money. “They’d want to do it immediately,” says Serge. “But if you think about it, it’s just patching the existing system, constantly. The existing code base becomes an elephant that’s difficult to maintain.”
That is how he spent the vast majority of his two years at Goldman, maintaining the elephant. Oddly, he found his job more interesting than the stock-market trading he was enabling. “I think the engineering problems are much more interesting than the business problems,” he says. “Finance is just who gets money. Does it wind up in the right pocket or the left pocket? It just so happens that the companies that make money are the companies like Goldman Sachs. You can’t really win in that game unless you are one of these people who is receiving the hints.” He understood that Goldman’s quants were forever dreaming up new trading strategies, in the form of algorithms, for the robots to execute, and that these traders were meant to be extremely shrewd. He grasped further that “all their algorithms are premised on some sort of prediction—predicting something one second into the future.” But you needed only to have observed the 2008 stock-market crash from inside Goldman Sachs, as Serge had, to see that what seemed predictable often was not. Day after volatile day in September 2008, Goldman’s supposedly brilliant traders were losing tens of millions of dollars. “All of the expectations didn’t work,” recalls Serge. “They thought they controlled the market, but it was an illusion. Everyone would come into work and were blown away by the fact that they couldn’t control anything at all. . . . Finance is a gambling game for people who enjoy gambling.”
Serge wasn’t a gambler, by nature. He preferred the deterministic world of programming to the pseudo-deterministic world of speculation, and he never fully grasped the connection between his work and the Goldman traders’. He knew they were obsessed with the speed he created for them, but he was never convinced the work he was doing to speed up their robots led to greater profits. “It wasn’t ever clear if we shaved off half a millisecond what the advantage would be,” he says. “We did studies, but they were imperfect and not conclusive.”
The obvious thing he did to make Goldman’s robots faster was exactly what he had done at IDT to enable millions of phone calls to find their cheapest route: he decentralized Goldman’s system. Rather than have signals travel from the various exchanges back to the Goldman hub, he set up separate mini Goldman hubs inside each of the exchanges. But most of his time was spent simply patching the old code. To do this he and the other Goldman programmers resorted, every day, to open-source software, available free to anyone for any purpose. The tools and components they used were not specifically designed for financial markets, but they could be adapted to repair Goldman’s plumbing.
Serge quickly discovered, to his surprise, that Goldman had a one-way relationship with open source. They took huge amounts of free software off the Web, but they did not return it after he had modified it, even when his modifications were very slight and of general rather than financial use. “Once I took some open-source components, repackaged them to come up with a component that was not even used at Goldman Sachs,” he says. “It was basically a way to make two computers look like one, so if one went down the other could jump in and perform the task.” He described the pleasure of his innovation this way: “It created something out of chaos. When you create something out of chaos, essentially, you reduce the entropy in the world.” He went to his boss, a fellow named Adam Schlesinger, and asked if he could release it back into open source, as was his inclination. “He said it was now Goldman’s property,” recalls Serge. “He was quite tense. When I mentioned it, it was very close to bonus time. And he didn’t want any disturbances.”
Open source was an idea that depended on collaboration and sharing, and Serge had a long history of contributing to it. He didn’t fully understand how Goldman could think it was O.K. to benefit so greatly from the work of others and then behave so selfishly toward them. “You don’t create intellectual property,” he said. “You create a program that does something.” But from then on, on instructions from Schlesinger, he treated everything on Goldman Sachs’s servers, even if it had just been transferred there from open source, as Goldman Sachs’s property. (At Serge’s trial Kevin Marino, his lawyer, flashed two pages of computer code: the original, with its open-source license on top, and a replica, with the open-source license stripped off and replaced by the Goldman Sachs license.)
The funny thing was Serge actually liked Adam Schlesinger and most of the other people he worked with at Goldman. He liked less the environment the firm created for them to work in. “Everyone lived for the year-end number,” he believes. “You get satisfied when the bonus is sizable and you get not satisfied when the number is not. Everything there is very possessive.” It made no sense to him the way people were paid individually for achievements that were essentially collective. “It was quite competitive. Everyone’s trying to show how good their individual contribution to the team is. Because the team doesn’t get the bonus, the individual does.”
More to the point, the environment Goldman created for its employees, he felt, did not encourage good programming because good programming is by nature collaborative. “Essentially there was very minimal connections between people,” he says. “In telecom you usually have some synergies between people. Meetings when people exchange ideas. They aren’t under stress in the same way. At Goldman it was always ‘Some component is broken and we’re losing money because of it. Fix it now.’ ”
The programmers assigned to fix the code sat in cubicles and hardly spoke to one another. “When two people wanted to talk they wouldn’t just do it out on the floor,” says Serge. “They would go to one of the offices around the floor and close the door. I never had that experience in telecom or academia.”
By the time the financial crisis hit, Serge had a reputation of which he himself was unaware: he was known to corporate recruiters outside Goldman as the best programmer in the firm. “There were 20 guys on Wall Street who could do what Serge could do,” says a headhunter who works often for high-frequency-trading firms. “And he was one of the best, if not the best.”
At Goldman the programmer types tended not to know their true worth. They were in a different room from the traders, who were far more alive to the bigger picture, to their context. They knew their worth in the marketplace, down to the last penny. They understood the connection between what they did and how much money was made, and were good at exaggerating the importance of the link. Serge wasn’t like that. He was a little-picture person, a narrow problem solver. “I think he didn’t know his own value,” says the recruiter. “He compensated for being narrow by being good. He was that good.”
Given his character, and his situation, it’s hardly surprising that the market kept finding Serge Aleynikov and telling him what he was worth, rather than the other way around. A few months into his new job, headhunters were calling him every other week. A year into his new job he had a job offer from UBS, the Swiss bank, and a promise to bump up his salary to $400,000 a year. Serge didn’t particularly want to leave Goldman Sachs just to go and work at another big Wall Street firm, and so when Goldman offered to match the offer, he stayed. But in early 2009 he had another call, with a very different kind of offer: to create a trading platform from scratch for a new hedge fund run by a 39-year-old Russian fellow named Misha Malyshev.
The prospect of creating a new platform, rather than constantly patching an old one, excited him. Plus they were willing to pay him more than a million dollars a year to do it, and suggested they might even open an office for him near his home in New Jersey. He agreed and then told Goldman he was leaving. His bosses asked him what they could do to persuade him to stay. “They were trying to pursue me into this monetary discussion,” says Serge. “I told them it wasn’t the money. It was the chance to build a new system from the ground up.” He missed his telecom work environment. “Whereas at IDT I was really seeing the results of my work, here you had this monstrous system and you are patching it right and left. No one is giving you the whole picture. I had a feeling no one at Goldman really knows how it works as a whole, and they are just uncomfortable admitting that.”
He agreed to hang around for six weeks and teach other Goldman people everything he knew, so they could continue to find and fix the broken bands in their gigantic rubber ball. Four times in the course of those last weeks he mailed himself source code he was working on. (He’d later be accused of sending himself 32 megabytes of code, but what he sent was essentially the same 8 megabytes of code four times over.) The files contained a lot of open-source code he had worked with, and modified, over the past two years, mingled together with code that wasn’t open source but proprietary to Goldman Sachs. As he would later try and fail to explain to an F.B.I. agent, he hoped to disentangle the one from the other, in case he needed to remind himself how he had done what he had done with the open-source code, in the event he might need to do it again. He sent these files the same way he had sent himself files nearly every week, since his first month on the job at Goldman. “No one had ever said a word to me about it,” he says. He pulled up his browser and typed into it the words: Free Subversion Repository. Up popped a list of places that stored code, for free, and in a convenient fashion. He clicked the first link on the list. The entire process took about eight seconds. And then he did what he had always done since he first started programming computers: he deleted his bash history. To access the computer he was required to type his password. If he didn’t delete his bash history, his password would be there to see, for anyone who had access to the system.
It wasn’t an entirely innocent act. “I knew that they wouldn’t be happy about it,” he says, because he knew their attitude was that anything that happened to be on Goldman’s servers was the wholly owned property of Goldman Sachs—even when Serge himself had taken that code from open source. When asked how he felt when he did it, he says, “It felt like speeding. Speeding in the car.”
The trial of Serge Aleynikov lasted 10 days and was notable for its paucity of informed outsiders. High-frequency trading is a small world, and the people who do it, or know anything at all about it, apparently have far less interest in testifying at trials than in making their personal fortunes. The one outside expert witness on the subject called by the government, a professor at Illinois Institute of Technology named Benjamin Van Vliet, had never actually done any high-frequency trading himself and had little to add on the value or the gist of what Serge had taken. About the market itself he was badly misinformed. (He described Goldman Sachs as “the New York Yankees” of high-frequency trading.) He turned out to have testified as an expert witness in an earlier trial involving the theft of high-frequency-trading code, after which the judge had described what he’d said as “utter baloney.”
The jury consisted mainly of high-school graduates and lacked anyone with experience programming computers. “They would bring my computer into the courtroom,” recalls Serge incredulously. “They would pull out the hard drive and show it to the jury. As evidence!” Save for Misha Malyshev, Serge’s brief employer, the people who took the stand had no credible knowledge of high-frequency trading: how the money is made, what sort of computer code is valuable, etc. Malyshev, who’d been subpoenaed as a witness for the prosecution, testified that Goldman’s code was of no use whatsoever in the system he’d hired Serge to build—he insisted that it had never been his plan to import code from anywhere because he wanted to build Teza’s system from scratch. He wanted something flexible and fast, that he could continuously upgrade. Even if offered Goldman’s entire high-frequency-trading platform he would not have been interested—but when he looked over he saw that half the jury appeared to be sleeping. “If I were a juror, and I wasn’t a programmer,” says Serge, “it would be very difficult for me to understand why I did what I did.”
More to the point, the environment Goldman created for its employees, he felt, did not encourage good programming because good programming is by nature collaborative. “Essentially there was very minimal connections between people,” he says. “In telecom you usually have some synergies between people. Meetings when people exchange ideas. They aren’t under stress in the same way. At Goldman it was always ‘Some component is broken and we’re losing money because of it. Fix it now.’ ”
The programmers assigned to fix the code sat in cubicles and hardly spoke to one another. “When two people wanted to talk they wouldn’t just do it out on the floor,” says Serge. “They would go to one of the offices around the floor and close the door. I never had that experience in telecom or academia.”
By the time the financial crisis hit, Serge had a reputation of which he himself was unaware: he was known to corporate recruiters outside Goldman as the best programmer in the firm. “There were 20 guys on Wall Street who could do what Serge could do,” says a headhunter who works often for high-frequency-trading firms. “And he was one of the best, if not the best.”
At Goldman the programmer types tended not to know their true worth. They were in a different room from the traders, who were far more alive to the bigger picture, to their context. They knew their worth in the marketplace, down to the last penny. They understood the connection between what they did and how much money was made, and were good at exaggerating the importance of the link. Serge wasn’t like that. He was a little-picture person, a narrow problem solver. “I think he didn’t know his own value,” says the recruiter. “He compensated for being narrow by being good. He was that good.”
Given his character, and his situation, it’s hardly surprising that the market kept finding Serge Aleynikov and telling him what he was worth, rather than the other way around. A few months into his new job, headhunters were calling him every other week. A year into his new job he had a job offer from UBS, the Swiss bank, and a promise to bump up his salary to $400,000 a year. Serge didn’t particularly want to leave Goldman Sachs just to go and work at another big Wall Street firm, and so when Goldman offered to match the offer, he stayed. But in early 2009 he had another call, with a very different kind of offer: to create a trading platform from scratch for a new hedge fund run by a 39-year-old Russian fellow named Misha Malyshev.
The prospect of creating a new platform, rather than constantly patching an old one, excited him. Plus they were willing to pay him more than a million dollars a year to do it, and suggested they might even open an office for him near his home in New Jersey. He agreed and then told Goldman he was leaving. His bosses asked him what they could do to persuade him to stay. “They were trying to pursue me into this monetary discussion,” says Serge. “I told them it wasn’t the money. It was the chance to build a new system from the ground up.” He missed his telecom work environment. “Whereas at IDT I was really seeing the results of my work, here you had this monstrous system and you are patching it right and left. No one is giving you the whole picture. I had a feeling no one at Goldman really knows how it works as a whole, and they are just uncomfortable admitting that.”
He agreed to hang around for six weeks and teach other Goldman people everything he knew, so they could continue to find and fix the broken bands in their gigantic rubber ball. Four times in the course of those last weeks he mailed himself source code he was working on. (He’d later be accused of sending himself 32 megabytes of code, but what he sent was essentially the same 8 megabytes of code four times over.) The files contained a lot of open-source code he had worked with, and modified, over the past two years, mingled together with code that wasn’t open source but proprietary to Goldman Sachs. As he would later try and fail to explain to an F.B.I. agent, he hoped to disentangle the one from the other, in case he needed to remind himself how he had done what he had done with the open-source code, in the event he might need to do it again. He sent these files the same way he had sent himself files nearly every week, since his first month on the job at Goldman. “No one had ever said a word to me about it,” he says. He pulled up his browser and typed into it the words: Free Subversion Repository. Up popped a list of places that stored code, for free, and in a convenient fashion. He clicked the first link on the list. The entire process took about eight seconds. And then he did what he had always done since he first started programming computers: he deleted his bash history. To access the computer he was required to type his password. If he didn’t delete his bash history, his password would be there to see, for anyone who had access to the system.
It wasn’t an entirely innocent act. “I knew that they wouldn’t be happy about it,” he says, because he knew their attitude was that anything that happened to be on Goldman’s servers was the wholly owned property of Goldman Sachs—even when Serge himself had taken that code from open source. When asked how he felt when he did it, he says, “It felt like speeding. Speeding in the car.”
The trial of Serge Aleynikov lasted 10 days and was notable for its paucity of informed outsiders. High-frequency trading is a small world, and the people who do it, or know anything at all about it, apparently have far less interest in testifying at trials than in making their personal fortunes. The one outside expert witness on the subject called by the government, a professor at Illinois Institute of Technology named Benjamin Van Vliet, had never actually done any high-frequency trading himself and had little to add on the value or the gist of what Serge had taken. About the market itself he was badly misinformed. (He described Goldman Sachs as “the New York Yankees” of high-frequency trading.) He turned out to have testified as an expert witness in an earlier trial involving the theft of high-frequency-trading code, after which the judge had described what he’d said as “utter baloney.”
The jury consisted mainly of high-school graduates and lacked anyone with experience programming computers. “They would bring my computer into the courtroom,” recalls Serge incredulously. “They would pull out the hard drive and show it to the jury. As evidence!” Save for Misha Malyshev, Serge’s brief employer, the people who took the stand had no credible knowledge of high-frequency trading: how the money is made, what sort of computer code is valuable, etc. Malyshev, who’d been subpoenaed as a witness for the prosecution, testified that Goldman’s code was of no use whatsoever in the system he’d hired Serge to build—he insisted that it had never been his plan to import code from anywhere because he wanted to build Teza’s system from scratch. He wanted something flexible and fast, that he could continuously upgrade. Even if offered Goldman’s entire high-frequency-trading platform he would not have been interested—but when he looked over he saw that half the jury appeared to be sleeping. “If I were a juror, and I wasn’t a programmer,” says Serge, “it would be very difficult for me to understand why I did what I did.”
Goldman Sachs’s role in the trial was to make genuine understanding even more difficult. Its lawyers coached witnesses; its employees, on the witness stand, behaved more like salesmen for the prosecution than citizens of the state. “It’s not that they lied,” says Serge. “But they told things that were not in their expertise. When [his former boss Adam] Schlesinger was asked about the code, he just said everything at Goldman is proprietary. I wouldn’t say he lied, but he was misunderstood.”
Gorging on the Truth
Our system of justice was 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 F.B.I. had not sought help from someone 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 of these people were authorities on our abstruse new stock market; several had written high-frequency code; one had actually developed software for Goldman’s high-frequency traders. All were men. Among them, they’d grown up in four different countries, but all now lived in the United States and worked on Wall Street. Like most Wall Street people, they were naturally cynical, of both Goldman Sachs and Serge Aleynikov. They’d followed his case in the newspapers and noted the shiver it had sent down the spines of Wall Street’s software developers. Until Serge was sent to jail for doing it, Wall Street programmers routinely took 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 them put it. “Every tech programmer out there got the message: Take code and you could go to jail. It was huge.”
Still, they assumed that if Serge had been sentenced to eight years in jail he must have done something wrong. They just hadn’t bothered to figure out what that was. Now they would.
The restaurant was one of those old-school Wall Street places that charges you a thousand bucks for a private room and then more or less challenges 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, steaming 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 their enemy’s harem. At any rate, they made hardly a dent. Serge, for his part, ate so little, and with so little interest, 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 how much money he made from it. 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 45, in a firm with more than 32,000 employees) who could log in as an administrator to the system. 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 Goldman’s computer code, without anyone having any idea that he had done so. That fact alone didn’t 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 didn’t mean he was not a thief. On the other hand, they all agreed, there wasn’t 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 your bash history were common practices, especially if you typed your password into command lines. In short, Serge had not behaved like a man trying to cover his tracks. One of those assembled stated the obvious: “If deleting the bash history was so clever and devious, why had Goldman ever found out he’d taken anything?”
The story the F.B.I. 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 complete sense to the new jurors. As Goldman hadn’t permitted him to release his debugged or improved code back to the public—possibly in violation of the original free licenses, which often stated that improvements must be publicly shared—the only way to get his hands on these was to take the Goldman code. That he had taken, in the bargain, some code that wasn’t open source, which happened to be contained 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, quick, and dirty way to collect the open-source code, even if the open-source code was the only part 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 entirely plausible to them that Serge’s interest was confined to the open-source code because that was the general-purpose code that might be re-purposed later. The Goldman proprietary code was written specifically for Goldman’s platform; it would have been of little use in any new system he wished to build. (Two small pieces of code Serge had sent into Teza’s computers before his arrest both came with open-source licenses.) “Even if he had taken Goldman’s whole platform, it would have been faster and better for him to write the new platform himself,” said one juror.
Several times he surprised them with his answers. They were all shocked, for instance, that from the day he arrived at Goldman he had been able to send Goldman’s source code to himself weekly without anyone at Goldman saying a word to him about it. “At Citadel if you install a USB drive into your workstation, someone is standing next to you within five minutes, asking you what the hell you are doing,” said one. Most were surprised by how little he had taken in relation to the whole: eight megabytes in a platform that consisted of an estimated one gigabyte of code. The most cynical among them were surprised mostly by what he had not taken.
“Did you take the strats?” asked one (meaning Goldman’s trading strategies).
“No,” said Serge. That was one thing the prosecutors hadn’t accused him of.
“But that’s the secret sauce, if there is one,” said the juror. “If you’re going to take something, take the strats.”
“I wasn’t interested in the strats,” said Serge.
“But that’s 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 didn’t you?”
“To me, the technology really is not interesting,” said Serge.
“You weren’t interested in how they made hundreds of millions of dollars?” asked someone else.
“Not really,” said Serge. “It’s 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 Goldman’s 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 upon leaving the informal trial. “You’d have to try to know as little as he did.” Another added, “He knew as much as they wanted him to know about how they made money, which was virtually nothing. He wasn’t there for very long. He came in with no context. And he spent all of his time troubleshooting.”
At least some part of the reason he remained oblivious to the nature of the trading business, they all 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 didn’t 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 didn’t fully understand why some parts of Goldman’s system might not be useful in some other system. “Goldman’s 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 [the new high-frequency-trading firm for which Serge left Goldman] was going to build a new house, on new land. Why would you take 100-year-old copper pipes and put them in my new house? It isn’t that they couldn’t be used; it’s that the amount of trouble involved in making it useful is ridiculous.” A third added, “It’s way easier to start from scratch.” (Their conviction 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 likely 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 at all. A full month after he’d left Goldman he still had barely touched the code he had taken. If the code was so unimportant to him that he didn’t bother to open it up and study it, if most of it was either so clunky or so particular to Goldman’s system that it was next to useless outside Goldman, why take it at all? Oddly, the market insiders didn’t find this hard to understand. One of them later 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. A is better off at the expense of B. That is clear-cut and most people’s view of theft. In Serge’s 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 meetings—it’s all written down in that notebook. You leave for your new job and take the notebook with you (as 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 on—but 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.”
The real mystery, to the insiders, wasn’t why Serge had done what he had done. It was why Goldman Sachs had done what it had done. Why on earth call the F.B.I.? Why coach your employees to say what they need to say on a witness stand to maximize the possibility of sending him to prison? 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?
They had no end of theories about this, but one was more intriguing than the others. It had to do with the nature of Goldman Sachs these days, and the way people who work for the firm get ahead. As one put it, “Every manager of a Wall Street tech group likes to have people believe that his guys are geniuses. Their whole persona among their peers is that what they and their team do can’t be replicated. When people find out that 95 percent of their code is open-source, it kills that perception. . . . So when the security people come to them and tell them about the downloads, they can’t say, ‘No big deal.’ And they can’t say, ‘I don’t know what he took.’ ”
To put it another way: the process that ended with Serge Aleynikov sitting inside a federal prison may have started with some Goldman Sachs employees concerned about their bonuses. As they walked down Wall Street and into the night, one of the jurors said, “I’m actually nauseous. It makes me sick.”
In the comfort of the Wall Street cornucopia, that notion—that the hellish experience he’d been through had actually been good for him—was too weird to pursue, and they returned to discussing computer code and high-frequency trading. But Serge actually believed all of this. Before his arrest—before he lost all he thought important—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 couldn’t sleep,” he says. “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 panic at the idea that something could go wrong.” By the time he was first sent to prison, his wife had left him, and he had no money, and no one to turn to. He needed other people. “He didn’t have very close friends,” says Masha Leder. “He never did. He’s not a people person. He didn’t even have anyone to be power of attorney.” Out of a sense of Russian solidarity, and pity, she took the job—which meant, among other things, frequent trips to see Serge in prison. “Every time I would come to visit him in jail, I would leave energized by him,” she says. “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 didn’t.”
At least some part of the reason he remained oblivious to the nature of the trading business, they all 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 didn’t 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 didn’t fully understand why some parts of Goldman’s system might not be useful in some other system. “Goldman’s 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 [the new high-frequency-trading firm for which Serge left Goldman] was going to build a new house, on new land. Why would you take 100-year-old copper pipes and put them in my new house? It isn’t that they couldn’t be used; it’s that the amount of trouble involved in making it useful is ridiculous.” A third added, “It’s way easier to start from scratch.” (Their conviction 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 likely 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 at all. A full month after he’d left Goldman he still had barely touched the code he had taken. If the code was so unimportant to him that he didn’t bother to open it up and study it, if most of it was either so clunky or so particular to Goldman’s system that it was next to useless outside Goldman, why take it at all? Oddly, the market insiders didn’t find this hard to understand. One of them later 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. A is better off at the expense of B. That is clear-cut and most people’s view of theft. In Serge’s 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 meetings—it’s all written down in that notebook. You leave for your new job and take the notebook with you (as 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 on—but 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.”
The real mystery, to the insiders, wasn’t why Serge had done what he had done. It was why Goldman Sachs had done what it had done. Why on earth call the F.B.I.? Why coach your employees to say what they need to say on a witness stand to maximize the possibility of sending him to prison? 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?
They had no end of theories about this, but one was more intriguing than the others. It had to do with the nature of Goldman Sachs these days, and the way people who work for the firm get ahead. As one put it, “Every manager of a Wall Street tech group likes to have people believe that his guys are geniuses. Their whole persona among their peers is that what they and their team do can’t be replicated. When people find out that 95 percent of their code is open-source, it kills that perception. . . . So when the security people come to them and tell them about the downloads, they can’t say, ‘No big deal.’ And they can’t say, ‘I don’t know what he took.’ ”
To put it another way: the process that ended with Serge Aleynikov sitting inside a federal prison may have started with some Goldman Sachs employees concerned about their bonuses. As they walked down Wall Street and into the night, one of the jurors said, “I’m actually nauseous. It makes me sick.”
Cyrus Vance’s Secret Sauce
The mystery the jury of his peers had more trouble solving was Serge himself. He seems, and perhaps even is, 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’s savings, and his reputation, Serge would have come in dead last. At one point one of the people at the table stopped the conversation about computer code and asked, “Why aren’t you angry?” Serge just smiled back at him. “No, really,” said the other. “How do you stay so calm? I’d 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 doesn’t give you anything. You know that something happened. Your life happened to go in that particular route. If you know that you’re innocent, know it. But at the same time, you know you are in trouble and this is how it’s going to be.” To which he added, “To some extent I’m glad this happened to me. I think it strengthened my understanding of what living is all about.”In the comfort of the Wall Street cornucopia, that notion—that the hellish experience he’d been through had actually been good for him—was too weird to pursue, and they returned to discussing computer code and high-frequency trading. But Serge actually believed all of this. Before his arrest—before he lost all he thought important—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 couldn’t sleep,” he says. “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 panic at the idea that something could go wrong.” By the time he was first sent to prison, his wife had left him, and he had no money, and no one to turn to. He needed other people. “He didn’t have very close friends,” says Masha Leder. “He never did. He’s not a people person. He didn’t even have anyone to be power of attorney.” Out of a sense of Russian solidarity, and pity, she took the job—which meant, among other things, frequent trips to see Serge in prison. “Every time I would come to visit him in jail, I would leave energized by him,” she says. “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 didn’t.”
The prison in which Serge spent his first four months also housed violent criminals. It was essentially nonverbal, but he didn’t find it hard to stay out of trouble, and even found people he could talk to, and enjoy talking to. When they moved him to the low-security prison at Fort Dix he was still in a room crammed with hundreds of other roommates, but 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,” says Leder. “He lived on beans and rice. He was always hungry. I’d 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 Serge’s jail term Masha received a thick envelope from him. It contained roughly a hundred pages covered on both sides in Serge’s meticulous eight-point script. It was computer code—a solution to some high-frequency-trading problem. Serge was afraid if the guards found it they would deem it suspicious, and confiscate it.
A year after he’d 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. The very day Marino—who by then was working gratis, for a client who was dead broke—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 noon on February 17, 2012, Serge was set free.
A few months later Marino noticed that the government had failed to return Serge’s passport. That’s odd, he thought, and called and asked for it. The passport never arrived; instead Serge, now staying with friends in New Jersey, was arrested again and taken to jail. He had no idea what he was being arrested for, and neither did his lawyer. “When I got the call,” says Marino, “I thought it might have something to do with Serge’s child support.” It didn’t. A few days later the Manhattan D.A., Cyrus Vance Jr., 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 “the code is so highly confidential that it is known in the industry as the firm’s ‘secret sauce,’ ” and thanked Goldman Sachs for its cooperation. The only employee of Goldman Sachs to go to jail in the aftermath of the financial crisis was the employee Goldman Sachs wanted sent to jail, for taking something from Goldman Sachs. Apparently now they wanted him back in.
Marino recognized the phrase “secret sauce.” It hadn’t come from “the industry” but from his opening statement in Serge’s first trial, when he mocked the prosecutors for treating Goldman’s code as if it were some “secret sauce.” Otherwise Serge’s re-arrest made no sense to him. To avoid double jeopardy, the Manhattan D.A.’s 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 convicted, it was possible he wouldn’t have to return to jail. He’d already served time, for crimes the court ultimately determined he had not committed. Marino called the D.A.’s office. “They told me that they didn’t need him to be punished anymore, but they did need him to be held accountable,” says 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 didn’t. “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 re-attached 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. He’d even started a memoir, to explain what had happened to anyone who might be interested. As he wrote:
“If the incarceration experience doesn’t 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 with people who crossed the law, as well as by those who were incidentally and circumstantially picked and crushed by somebody else’s 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.”
A year after he’d 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. The very day Marino—who by then was working gratis, for a client who was dead broke—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 noon on February 17, 2012, Serge was set free.
A few months later Marino noticed that the government had failed to return Serge’s passport. That’s odd, he thought, and called and asked for it. The passport never arrived; instead Serge, now staying with friends in New Jersey, was arrested again and taken to jail. He had no idea what he was being arrested for, and neither did his lawyer. “When I got the call,” says Marino, “I thought it might have something to do with Serge’s child support.” It didn’t. A few days later the Manhattan D.A., Cyrus Vance Jr., 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 “the code is so highly confidential that it is known in the industry as the firm’s ‘secret sauce,’ ” and thanked Goldman Sachs for its cooperation. The only employee of Goldman Sachs to go to jail in the aftermath of the financial crisis was the employee Goldman Sachs wanted sent to jail, for taking something from Goldman Sachs. Apparently now they wanted him back in.
Marino recognized the phrase “secret sauce.” It hadn’t come from “the industry” but from his opening statement in Serge’s first trial, when he mocked the prosecutors for treating Goldman’s code as if it were some “secret sauce.” Otherwise Serge’s re-arrest made no sense to him. To avoid double jeopardy, the Manhattan D.A.’s 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 convicted, it was possible he wouldn’t have to return to jail. He’d already served time, for crimes the court ultimately determined he had not committed. Marino called the D.A.’s office. “They told me that they didn’t need him to be punished anymore, but they did need him to be held accountable,” says 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 didn’t. “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 re-attached 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. He’d even started a memoir, to explain what had happened to anyone who might be interested. As he wrote:
“If the incarceration experience doesn’t 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 with people who crossed the law, as well as by those who were incidentally and circumstantially picked and crushed by somebody else’s 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.”
GOLDMAN SACHS RESPONDS: Goldman Sachs has spent millions of dollars and tens of thousands of hours developing the proprietary source code and technology used in our market-making business. The firm has put in place extensive safeguards to protect this valuable technology. In addition to contractual limits on disseminating confidential information, the firm restricts access to proprietary technology to those employees whose duties designing and maintaining the technology require such access. . . . In this case, the United States Court of Appeals for the Second Circuit determined that Sergey Aleynikov, minutes before his going-away party, “encrypted and uploaded to a server in Germany more than 500,000 lines of source code for Goldman’s HFT [high-frequency-trading] system.” While some of those files included open source software, the Court determined that “a substantially greater number of the uploaded files contained proprietary code.” The Court went on to note that the code “could be integrated into a competitor’s system” and that Mr. Aleynikov then “deleted the encryption program as well as the history of his computer commands.”
Michael Lewis: Did Goldman Sachs Overstep in Criminally Charging Its Ex-Programmer? | Vanity Fair
