People v. Aleynikov, Indictment Number 4447/12
| Decision Date | 02 May 2013 |
| Docket Number | Indictment Number 4447/12 |
| Citation | 2013 NY Slip Op 34209 (U) |
| Parties | THE PEOPLE OF THE STATE OF NEW YORK, v. SERGEY ALEYNIKOV, Defendant. |
| Court | New York Supreme Court |
Corrected Decision & Order1
Defendant moves to dismiss the instant indictment on the ground of facial insufficiency, double jeopardy, collateral estoppel, vindictive prosecution and in the interest of justice.
Goldman Sachs & Co. ("Goldman") is an international financial services firm which engages in high frequency trading ("HFT") on securities and commodities markets, such as the New York Stock Exchange ("NYSE") and NASDAQ Stock Market ("NASDAQ"), as part of its business. From May 2007 through June 2009, defendant was employed by Goldman as a computer programmer in itsEquities Division, developing and maintaining certain computer programs for the company's proprietary HFT system. A HFT system is a mechanism for making large volumes of trades in securities and commodities based on trading decisions affected in fractions of a second through algorithms that incorporate rapid market developments and data from past trades. The computer programs used to operate Goldman's HFT system are of three kinds: [1] market connectivity programs that process real-time market data and execute trades; [2] programs that use algorithms to determine which trades to make; and [3] infrastructure programs that facilitate the flow of information throughout the trading system and monitor the system's performance. Aleynikov's work focused on developing source codes for this last category of infrastructure programs in Goldman's HFT system. HFT is a competitive business that depends in large part on the speed with which information can be processed to seize fleeting market opportunities. Goldman closely guards the secrecy of each component of the system, and does not license the system to anyone. Goldman's confidentiality policies bound defendant to keep in strict confidence all the firm's proprietary information, including any intellectual property created by defendant.3 He was barred as well from takingit or using it when his employment ended.
By 2009, Aleynikov was earning $400,000, the highest-paid of the twenty-five programmers in his group. In April 2009, he accepted an offer to become an Executive Vice President at Teza Technologies LLC, a Chicago-based startup firm, that was looking to develop its own HFT system. Aleynikov was hired, at approximately $1 million a year, to develop the market connectivity and infrastructure components of Teza's HFT system. Teza's founder (a former head of HFT at Chicago-based hedge fund Citadel Investment Group) emailed Aleynikov (and several other employees) in late May, conveying his expectation that they would develop a functional trading system within six months. It usually takes years for a team of programmers to develop a HFT system from scratch.
After defendant resigned from Goldman in April of 2009, hewas allowed to remain at the firm for five weeks more. Aleynikov's last day at Goldman was June 5, 2009.
From March 30, 2009 until May 2009, defendant uploaded data from Goldman to a "subversion" website, with an address of svn.xp-dev.com. At approximately 5:20 p.m., just before his going-away party, defendant encrypted and uploaded to the subversion server in Germany more than 500,000 lines of source code for Goldman's HFT system, including code for a substantial part of the infrastructure, and some of the algorithms and market data connectivity programs. Some of the code pertained to programs that could operate independently of the rest of the Goldman system and could be integrated into a competitor's system. In addition to proprietary source code, Aleynikov also transferred some open source software licensed for use by the public that was mixed in with Goldman's proprietary code. However, he uploaded a greater number of files that contained proprietary code than open source code4.
After uploading the source code, Aleynikov deleted the encryption program as well as the "bash" history of his computer commands. When he returned to his home in New Jersey, Aleynikovdownloaded the source code and other material he had stored on the server in Germany to his home computer, and copied some of the files to other computer devices he owned.
Defendant's uploads to the subversion website attracted the attention of Goldman's computer security team on June 29, 2009. Goldman then alerted the authorities. On July 2, 2009, Aleynikov flew from New Jersey to Chicago to attend meetings at Teza. He had a flash/thumb drive and a laptop containing portions of the Goldman source code with him. When Aleynikov flew back the following day, he was arrested by the Federal Bureau of Investigation ("FBI") agents at Newark Liberty International Airport. The source code was also found on defendant's home computer.
In a statement to FBI agent Michael McSwain, defendant admitted to intentionally collecting both open and proprietary source code, with the idea of separating out the open source code once he had downloaded it to his home computer.
Defendant was initially charged in a federal indictment that accused him of violating the Economic Espionage Act of 1996 ("EEA"), 18 USC § 1832, by downloading a trade secret "that is related to or included in a product that is produced for or placed in interstate or foreign commerce," with the intent to convert such trade secret and to injure its owner, to theeconomic benefit of anyone other than the owner (see 18 U.S.C. § 1832(a)[Count One]); and with violating the National Stolen Property Act ("NSPA"), 18 U.S.C. § 2314, which makes it a crime to "transport[ ], transmit[ ], or transfer[ ] in interstate or foreign commerce any goods, wares, merchandise, securities or money, of the value of $5,000 or more, knowing the same to have been stolen, converted or taken by fraud" (18 U.S.C. § 2314 [Count Two]). A third count charged him with unauthorized computer access and exceeding authorized access in violation of the Computer Fraud and Abuse Act ("CFAA"), (18 U.S.C. § 1030).
Aleynikov moved to dismiss the federal indictment for failure to state an offense. On September 3, 2010, the district court dismissed Count Three of the indictment after finding that defendant's conduct did not fall within the federal anti-hacking statute but otherwise denied Aleynikov's motion (see United States v. Aleynikov, 737 F.Supp.2d 173 [SDNY 2010]).
After a jury trial, defendant was convicted on both remaining counts and sentenced to 97 months of imprisonment followed by a three-year term of supervised release, and was ordered to pay a $12,500 fine. Bail pending appeal was denied because Aleynikov, a dual citizen of the United States and Russia, was feared to be a flight risk.
On February 17, 2012, Aleynikov appealed his conviction andsentence, arguing that his conduct did not constitute an offense under either the NSPA or EEA. The Second Circuit reversed Aleynikov's convictions on both counts, concluding, as the People point out, that defendant's conduct did not fit within the narrow confines of the two federal statutes under which he was charged. (see United States v. Aleynikov, 676 F.3d 71, 73- 75 [2d Cir. 2012]; see PR:3).5
Thereafter, in April 2012, the Office of the New York County District Attorney ("DANY") became aware of the Second Circuit's decision reversing defendant's federal conviction (see PR:1-2, ¶ 3). In reversing defendant's conviction, the Second Circuit observed:
The conduct found by the jury is conduct that [defendant] should have known was in breach of his confidentiality obligations to Goldman, and was dishonest in ways that would subject him to sanctions; but he could not have known that it would offend this criminal law or this particular sovereign,
referring to the federal statutes under which he was prosecuted (United States v. Aleynikov, 676 F.3d, at 82).
The People took this as an "invitation" (see Affirmation of ADA Joanne Li, dated November 29, 2012, p.4). After reviewingthe Second Circuit's decision, DANY contacted the federal prosecutor's office to express interest in pursuing a state prosecution of defendant and on July 31, 2012, charged defendant, by arrest warrant, with one count of Unlawful Duplication of Computer Related Material in the First Degree (Penal Law § 156.30[1]) and one count of Unlawful Use of Secret Scientific Material (Penal Law § 165.07). A New York County Grand Jury then indicted defendant on each of the counts in the arrest warrant.
The motion for inspection and/or dismissal of the Grand Jury minutes is granted to the extent that the Court has examined the Grand Jury minutes in camera and found both the testimonial and documentary, non-hearsay evidence before the Grand Jury to be legally sufficient, the instructions to be proper and the proceeding to be otherwise unimpaired. The issues in the defendant's motion, while numerous, are straightforward, and disclosure of the Grand Jury minutes is not necessary to their resolution (see CPL § 210.30[3]). Accordingly, the motion to dismiss the indictment on these grounds is denied.
The Court specifically notes that the indictment satisfies the CPL 200.50(7) requirement that the indictment contain a "plain and concise factual statement in each count which, without allegations of an evidentiary nature [and it]...asserts facts supporting every element of the offense charged and thedefendant's or defendants' commission thereof with sufficient precision to clearly apprise the defendant or defendants of the conduct which is the subject of the accusation" (see People v Iannone, 45 N.Y.2d 589 [1978]). "[T]he charges use the language of the statutes involved, unless the language is too broad" (People v. Perez, 93 AD3d 1032, 1034 [3rd Dept.], lv. den. 19 NY3d 1000 [2012], citing Iannone, 45 N.Y.2d, at 599). In this case, the indictment not only tracked the statutory language, it provided additional...
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