United States v. Aleynikov

Decision Date11 April 2012
Docket NumberDocket No. 11–1126.
Citation102 U.S.P.Q.2d 1458,676 F.3d 71
PartiesUNITED STATES of America, Appellee, v. Sergey ALEYNIKOV, Defendant–Appellant.
CourtU.S. Court of Appeals — Second Circuit

OPINION TEXT STARTS HERE

Kevin H. Marino, Marino, Tortorella & Boyle, P.C., Chatham, NJ, for Appellant.

Joseph P. Facciponti (Justin S. Weddle, on the brief), Assistant United States Attorney, for Preet Bharara, United States Attorney, Southern District of New York, New York, NY, for Appellee.

Before: JACOBS, Chief Judge, CALABRESI and POOLER, Circuit Judges.

DENNIS JACOBS, Chief Judge:

Sergey Aleynikov was convicted, following a jury trial in the United States District Court for the Southern District of New York (Cote, J.), of stealing and transferring some of the proprietary computer source code used in his employer's high frequency trading system, in violation of the National Stolen Property Act, 18 U.S.C. § 2314 (the NSPA), and the Economic Espionage Act of 1996, 18 U.S.C. § 1832 (the EEA). On appeal, Aleynikov argues, inter alia, that his conduct did not constitute an offense under either statute. He argues that: [1] the source code was not a “stolen” “good” within the meaning of the NSPA, and [2] the source code was not “related to or included in a product that is produced for or placed in interstate or foreign commerce” within the meaning of the EEA. We agree, and reverse the judgment of the district court.

BACKGROUND

Sergey Aleynikov, a computer programmer, was employed by Goldman Sachs & Co. (“Goldman”) from May 2007 through June 2009, developing computer source code for the company's proprietary high-frequency trading (“HFT”) system. An HFT system is a mechanism for making large volumes of trades in securities and commodities based on trading decisions effected in fractions of a second. Trades are executed on the basis of 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 code for this last category of infrastructure programs in Goldman's HFT system. High frequency trading 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 Aleynikov to keep in strict confidence all the firm's proprietary information, including any intellectual property created by Aleynikov. He was barred as well from taking it 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 that was looking to develop its own HFT system. Aleynikov was hired, at over $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 an HFT system from scratch.

Aleynikov's last day at Goldman was June 5, 2009. At approximately 5:20 p.m., just before his going-away party, Aleynikov encrypted and uploaded to a 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.1 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. After uploading the source code, Aleynikov deleted the encryption program as well as the history of his computer commands. When he returned to his home in New Jersey, Aleynikov downloaded the source code from the server in Germany to his home computer, and copied some of the files to other computer devices he owned.

On July 2, 2009, Aleynikov flew from New Jersey to Chicago to attend meetings at Teza. He brought with him a flash drive and a laptop containing portions of the Goldman source code. When Aleynikov flew back the following day, he was arrested by the FBI at Newark Liberty International Airport.

The indictment charged him with violating the EEA 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 the economic benefit of anyone other than the owner, see 18 U.S.C. § 1832(a) (Count One); and with violating the NSPA, 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, 18 U.S.C. § 1030.

Aleynikov moved to dismiss the indictment for failure to state an offense. See Fed.R.Crim.P. 12(b)(3)(B). The district court dismissed Count Three of the indictment but otherwise denied Aleynikov's motion. United States v. Aleynikov, 737 F.Supp.2d 173 (S.D.N.Y.2010).

As to Count One, the district court concluded: [1] the stolen source code is a trade secret; [2] the HFT system constitutes a “product” to which the source code relates because the system was developed and modified through the labor of Goldman's computer programmers; and [3] the HFT system was “produced for” interstate commerce because it facilitates the rapid execution of trades on financial markets such as the New York Stock Exchange and NASDAQ. Id. at 177–79. The district court reasoned that the whole purpose of the HFT system was “to engage in interstate and foreign commerce.” Id. at 179.

As to Count Two, the court held that the source code for Goldman's HFT system constitutes “goods” that were “stolen” within the meaning of the NSPA because, though source code is intangible, it “contains highly confidential trade secrets related to the Trading System” that “would be valuable for any firm seeking to launch, or enhance, a high-frequency trading business.” Id. at 187.

Count Three was dismissed on the ground that Aleynikov was authorized to access the Goldman computer and did not exceed the scope of his authorization, and that authorized use of a computer in a manner that misappropriates information is not an offense under the Computer Fraud and Abuse Act. Id. at 192–94.

The jury convicted Aleynikov on Counts One and Two. He was 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.

Aleynikov appealed his conviction and sentence, arguing, among other things, that the district court erred in denying his motion to dismiss the indictment in its entirety. The Government did not appeal the dismissal of Count Three of the indictment.

On February 17, 2012, following oral argument, we issued a short order reversing Aleynikov's convictions on both counts, and indicated that an opinion would follow.

DISCUSSION

On appeal, Aleynikov renews his challenge to the sufficiency of the indictment on both Counts One and Two.2 As to Count One, he argues that the source code is not “related to or included in a product that is produced for or placed in interstate or foreign commerce” within the meaning of the EEA. As to Count Two, Aleynikov argues that the source code—as purely intangible property—is not a “good” that was “stolen” within the meaning of the NSPA.

Aleynikov's challenge requires us to determine the scope of two federal criminal statutes. Since federal crimes are “solely creatures of statute,” Dowling v. United States, 473 U.S. 207, 213, 105 S.Ct. 3127, 87 L.Ed.2d 152 (1985) (internal quotation marks omitted), a federal indictment can be challenged on the ground that it fails to allege a crime within the terms of the applicable statute. See United States v. Pirro, 212 F.3d 86, 91–92 (2d Cir.2000).3 The sufficiency of an indictment and the interpretation of a federal statute are both matters of law that we review de novo. See Fiero v. Fin. Indus. Regulatory Auth., Inc., 660 F.3d 569, 573 (2d Cir.2011); Pirro, 212 F.3d at 92.

Statutory construction “must begin with the language employed by Congress and the assumption that the ordinary meaning of that language accurately expresses the legislative purpose.” United States v. Albertini, 472 U.S. 675, 680, 105 S.Ct. 2897, 86 L.Ed.2d 536 (1985) (quoting Park 'N Fly, Inc. v. Dollar Park & Fly, Inc., 469 U.S. 189, 194, 105 S.Ct. 658, 83 L.Ed.2d 582 (1985)). “Due respect for the prerogatives of Congress in defining federal crimes prompts restraint in this area, where we typically find a narrow interpretation appropriate.” Dowling, 473 U.S. at 213, 105 S.Ct. 3127 (internal quotation marks omitted).

We conclude that Aleynikov's conduct did not constitute an offense under either the NSPA or the EEA, and that the indictment was therefore legally insufficient. We consider the statutes in the order they were briefed: the NSPA...

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