Goldman Sachs Loses Grip on Its Doomsday Machine

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rowmat's picture
rowmat
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Goldman Sachs Loses Grip on Its Doomsday Machine

Golden Stacks.... a victim of theft? - Oh no!

Original Bloomberg article

[quote: Bloomberg]

Goldman Sachs Loses Grip on Its Doomsday Machine - (emphasis mine)

July 9 (Bloomberg) -- Never let it be said that the Justice Department can’t move quickly when it gets a hot tip about an alleged crime at a Wall Street bank. It does help, though, if the party doing the complaining is the bank itself, and not merely an aggrieved customer.

Another plus is if the bank tells the feds the security of the U.S. financial markets is at stake. This brings us to the strange tale of Goldman Sachs Group Inc. and Sergey Aleynikov.

Aleynikov, 39, is the former Goldman computer programmer who was arrested on theft charges July 3 as he stepped off a flight at Liberty International Airport in Newark, New Jersey. That was two days after Goldman told the government he had stolen its secret, rapid-fire, stock- and commodities-trading software in early June during his last week as a Goldman employee. Prosecutors say Aleynikov uploaded the program code to an unidentified Web site server in Germany.

It wasn’t just Goldman that faced imminent harm if Aleynikov were to be released, Assistant U.S. Attorney Joseph Facciponti told a federal magistrate judge at his July 4 bail hearing in New York. The 34-year-old prosecutor also dropped this bombshell: “The bank has raised the possibility that there is a danger that somebody who knew how to use this program could use it to manipulate markets in unfair ways.”

How could somebody do this? The precise answer isn’t obvious -- we’re talking about a black-box trading system here. And Facciponti didn’t elaborate. You don’t need a Goldman Sachs doomsday machine to manipulate markets, of course. A false rumor expertly planted using an ordinary telephone often will do just fine. In any event, the judge rejected Facciponti’s argument that Aleynikov posed a danger to the community, and ruled he could go free on $750,000 bail. He was released July 6.

Market Manipulation

All this leaves us to wonder: Did Goldman really tell the government its high-speed, high-volume, algorithmic-trading program can be used to manipulate markets in unfair ways, as Facciponti said? And shouldn’t Goldman’s bosses be worried this revelation may cause lots of people to start hypothesizing aloud about whether Goldman itself might misuse this program?

Here’s some of what we do know. Aleynikov, a citizen of the U.S. and Russia, left his $400,000-a-year salary at Goldman for a chance to triple his pay at a start-up firm in Chicago co- founded by Misha Malyshev, a former Citadel Investment Group LLC trader. Malyshev, who oversaw high-frequency trading at Citadel, said his firm, Teza Technologies LLC, first learned about the alleged theft July 5 and suspended Aleynikov without pay.

‘Preposterous’ Charges

Aleynikov’s attorney, Sabrina Shroff, told the judge at the bail hearing that Aleynikov never intended to use the downloaded material “in any proprietary way” and that the government’s charges were “preposterous.”

Goldman isn’t commenting publicly about any of this, though it seems the bank’s bosses want us to believe there’s no need to worry. On July 6, Dow Jones Newswires quoted a “person familiar with the matter” saying this: “The theft has had no impact on our clients and no impact on our business.” Note that this person was so familiar with Goldman that he or she spoke of Goldman’s clients as “our clients” and Goldman’s business as “our business.”

By comparison, last Saturday, while most Americans were enjoying the Fourth of July holiday, Facciponti was in court warning of looming threats to Goldman and the financial markets.

“The copy in Germany is still out there,” the prosecutor said, according to an audio recording of the hearing. “And we at this time do not know who else has access to it and what’s going to happen to that software.”

Secret Software

“We believe that if the defendant is at liberty, there is a substantial danger that he will obtain access to that software and send it on to whoever may need it,” Facciponti said. “And keep in mind, this is worth millions of dollars.”

By “millions,” it’s unclear if that would be enough to match Goldman Chief Executive Lloyd Blankfein’s $70.3 million compensation package for 2007. Or perhaps millions means thousands of millions, otherwise known as billions.

Facciponti said the bank told the government that “they do not believe that any steps they can take would mitigate the danger of this program being released.” He added: “Once it is out there, anybody will be able to use this, and their market share will be adversely affected.” All Aleynikov would need to get the code from the German server is maybe 10 minutes with a cell phone and an Internet connection, Facciponti said.

Judge’s Ruling

The hole in Facciponti’s argument was that the government offered no evidence that Aleynikov had tried to disseminate the software during the month prior to his arrest, after he downloaded it and had left his job at Goldman. That’s the main reason the judge, Kevin N. Fox, cited in ruling Aleynikov could be released on bail.

“We don’t deal with speculation when we come to court,” Fox said. “We deal with facts.”

Meantime, it would be nice to see someone at Goldman go on the record to explain what’s stopping the world’s most powerful investment bank from using its trading program in unfair ways, too. Oh yes, and could the bank be a bit more careful about safeguarding its trading programs from now on? Hopefully the government is asking the same questions already.

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DrKrbyLuv
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Re: Goldman Sachs Loses Grip on Its Doomsday Machine

rowmat,

Thanks for bringing us this bizarre story that has HUGE implications.  I hope the prosecutor in this case go after GS since even they admit, this system disrupts markets and is immensely unfair.

Elaine Melankis said:  GS uses the old ‘trust’ scheme business. That is, we must trust them while they rip us all off. Their investors get rich, we get poorer. The markets are not supposed to be set up so some goofy gnome hiring some wizards, can short-circuit the system. When regulators notice that GS is using super computers to manipulate markets so they get a huge advantage over other investors, the regulators must stop GS, not help them. But GS runs the regulators.

This is why we saw an immense train wreck in all markets. The people that should be stopped are running the system so they are not stopped except by one force and one force only: Libra steps in from the darkness and violently resets the scales to zero. Now, GS should have gone bankrupt last fall. All the biggest banking businesses are up to their eyebrows in the Derivatives Beast’s mighty mess. And this began to unwind to zero last September when AIG went bankrupt.

Only, our government stepped in and saved GS and the other gnomes such as JP Morgan. They got access to trillions in US dollars, protection from rivals such as short sellers, and a lot of hand holding, they were even allowed to turn themselves into public banks before reverting back to pirate operations a month ago.

The computer revolution roars ahead in banking while the regulatory system is still horse and buggy. Any parts that really regulated things were eliminated by the banking gnomes so they could use computer codes as if they were magic spells and this conjured up this ‘Golden Goose’.

Once upon a time, there was this man who was very poor. He was granted a wish. Naturally, he wished to be very rich. So he was given a goose that laid golden eggs. When the king found out about this magical goose, he demanded it for himself. So, when the poor farmer handed the goose to the king, the king wanted to get to the source of the wealth because he didn’t want to wait every morning for just one egg at a time!

So had the goose cut open so he could have infinite wealth all at once. The goose died and the eggs ceased to be manufactured by it, one at a time. I wish to add to this story, which is very old: the real golden goose is not the stock markets. Nor is it the banks. It is the physical labor sector. The goose had to create the eggs every day. That meant, it had to eat. It had to have shelter and it had to be protected from foxes and wolves. The poor farmer did all of this. He fed the goose and protected it and it laid golden eggs.

GS and its ilk are all like the king. They want to slay the system so they can bleed it to death and cause all wealth to flow to them, not to the workers, not to the producers but to them, the leeches. They wanted to get rich via suctioning wealth out of the productive side of the system and replace capital with debts. This is why we are all dying due to economic collapse.

Here is an interesting chart published by the Guardian UK that shows how the banking returns were magnified by leverage as banks borrowed excessively and gamed the system:

Larry

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RSLCOUNSEL
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Re: Goldman Sachs Loses Grip on Its Doomsday Machine

Except from the legal transcript asserts interesting point of fact regarding manipulation.   Enjoy the psuedo-lawyer cross-examination on this posting. 

http://tedbits.blogspot.com/2009/07/united-states-district-court-southern.html

Also contains link to entire text of testimony.

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