A unanimous New York Court of Appeals has affirmed the criminal conviction of a former Goldman Sachs computer engineer convicted of stealing the bank’s high-frequency trading code, rejecting defendant Sergey Aleynikov’s argument that saving the code on a hard drive did not count as taking up tangible space.
“Ideas begin in the mind,” Judge Eugene Fahey wrote in the signed decision. “By its very nature, an idea, be it a symphony or computer source code, begins as intangible property. However, the medium upon which an idea is stored is generally physical, whether it is represented on a computer hard drive, vinyl record, or compact disc.”
Aleynikov’s loss at the Court of Appeals is the latest development in a legal odyssey that began in 2009, when the computer engineer left Goldman Sachs to work for a startup, Teza Technologies, that offered to triple Aleynikov’s salary at Goldman to $1.2 million.
On his last day at Goldman, Aleynikov uploaded thousands of the bank’s proprietary files to a server in Germany, and prosecutors allege that he tried to cover his tracks by encrypting and backdating files and wiping his computer’s use log.
His long and winding slog through the courts began at the U.S. District Court for the Southern District of New York, where he was convicted of violating the National Stolen Property Act.
But the U.S. Court of Appeals for the Second Circuit threw out the conviction, finding that the data was intangible property and thus did not fall under the statute’s definition of what constitutes stolen wares.
After Aleynikov’s victory at the federal appellate level, the Manhattan District Attorney’s Office decided to pursue Aleynikov on a different tack, charging him with unlawful use of secret scientific material, a 50-year-old statute proposed amid a federal case involving defendants who took, photocopied and returned manufacturing instructions for an antibiotic and a steroid, and likely written by lawmakers who did not have offshore computer servers and source codes for high-frequency trading in mind.
A jury found Aleynikov guilty on one of three counts, but in 2015, Manhattan Supreme Court Justice Daniel Conviser overruled the jury, saying there wasn’t enough evidence that Aleynikov made a tangible copy of the source code or that he intended to appropriate the source code.
But last year, the Appellate Division, First Department departed from the lower court’s view on the tangibility argument, and reinstated Aleynikov’s conviction of one count of unlawful use of secret scientific material, a class E felony.
In a ruling issued on Thursday, the Court of Appeals affirmed the First Department, finding that changes made to a hard drive when it stores information are physical in nature and rejecting Aleynikov’s argument that the unlawful use statute should be narrowly interpreted so that “tangible” could be taken to mean “touchable.”
Assistant District Attorney Elizabeth Roper of the Manhattan District Attorney’s Office presented oral arguments on behalf of the government, and the case was also prosecuted by Assistant District Attorneys Daniel Holmes and Jeremy Glickman.
“This unanimous decision makes abundantly clear that unlawful appropriation of intellectual property is a crime, whether that information is obtained by traditional or more modern means. In a city where bright ideas are prized and fiercely safeguarded, my office is committed to protecting valuable, proprietary information and will hold accountable those who engage in theft,” said Manhattan District Attorney Cyrus Vance Jr. in a news release.
While Aleynikov has been dealt a loss before New York’s high court, his various legal fights are not over, said Aleynikov’s lawyer, Kevin Marino of Marino, Tortorella & Boyle, as he still has a pending civil suit against Goldman in the District of New Jersey and he plans to continue to fight his conviction in New York.
With regard to the New York case, Marino noted in an email that prosecutors argued that “tangible” could be identified as “capable of being understood by the mind,” an argument that they did not present for appeal, but that was presented to the jury.
Within 30 days, Marino said, he will file a motion to set aside the trial court verdict on the basis of improper jury instructions and double jeopardy.