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United States v. Aleynikov

September 3, 2010

UNITED STATES OF AMERICA,
v.
SERGEY ALEYNIKOV, DEFENDANT.



The opinion of the court was delivered by: Denise Cote, District Judge

OPINION & ORDER

Defendant Sergey Aleynikov ("Aleynikov") has moved to dismiss each count in a three-count Indictment filed against him on February 11, 2010. Aleynikov, a former employee of Goldman Sachs & Co. ("Goldman"), is charged with misappropriating computer source code used in Goldman's high-frequency trading system. For the following reasons, the motion is granted in part.

BACKGROUND

As charged in the Indictment, Goldman is a global financial services firm engaged in, inter alia, high-frequency trading on securities and commodities markets, including the New York Stock Exchange ("NYSE") and NASDAQ Stock Market ("NASDAQ"). Aleynikov was a computer programmer employed by Goldman as a Vice President in its Equities Division from May 2007 until June 2009. In this position, Aleynikov was responsible for developing and maintaining some of the computer programs used to operate Goldman's high-frequency trading system. Aleynikov resigned in June 2009 to work for Teza Technologies, LLC ("Teza"), a company founded earlier that year. Teza offered Aleynikov the title of "Executive Vice President, Platform Engineering," in which position he would be responsible for developing Teza's own high-frequency trading business that would compete with Goldman.

High-frequency trading, an activity in which various banks and financial institutions engage, involves the rapid execution of high volumes of trades in which trading decisions are made by sophisticated computer programs that use complex mathematical formulae known as algorithms. The algorithms use statistical analyses of past trades and current market developments. Goldman used a proprietary system of computer programs, which the Indictment calls the "Platform," to rapidly obtain information on the latest market movements, to process that information into a form that can be analyzed by the algorithms, and to execute the trading decisions reached by the application of the algorithms to that information. Together, the trading algorithms and Platform comprise Goldman's trading system (the "Trading System").

Goldman acquired portions of the Platform when it purchased the Hull Trading Company ("Hull") in 1999 for approximately $500 million. Since then, Goldman's computer programmers have developed and modified the computer programs that Goldman uses in its Trading System by writing and altering their source code.*fn1

Goldman has not licensed its Trading System or made it or its components available to the public, and has taken measures to protect the Trading System's source code. Among other things, Goldman employees must execute a confidentiality agreement and assign to Goldman the rights to any ideas or information developed during their employment. Goldman also limits access to the Trading System's source code only to Goldman employees who have reason to access that source code, such as the programmers working on the Trading System.

During his employment at Goldman, Aleynikov was a member of a team of computer programmers responsible for developing and improving aspects of the Platform, including the Platform's interface with NASDAQ. On his last day of employment at Goldman, June 5, 2009, Aleynikov copied, compressed, encrypted, and transferred to an outside server in Germany hundreds of thousands of lines of source code for the Trading System, including trading algorithms that determine the value of stock options. The entity that operates the German server offers free and paid services to computer programmers who wish to store their source code projects. After transferring the source code to the German server, Aleynikov deleted the program he used to encrypt the files. He also deleted his "bash history," i.e., the history of his most recent computer commands. That evening, and in the days that followed, Aleynikov accessed the German server and downloaded the source code to his home computer, and from there to other home computers and to a portable flash drive.

On July 2, Aleynikov flew to Chicago, Illinois, to meet with Teza. He brought with him a laptop computer and the flash drive containing source code for Goldman's Trading System, including some of the source code that he copied and transferred to the German server on June 5.

The Indictment charges Aleynikov in three counts with theft of trade secrets in violation of 18 U.S.C. §§ 1832(a)(2) and (4); transportation of stolen property in interstate commerce, in violation of 18 U.S.C. § 2314; and unauthorized computer access and exceeding authorized access in violation of 18 U.S.C. §§ 1030(a)(2)(C) and 1030(c)(2)(B)(i)-(iii). On July 16, 2010, Aleynikov moved to dismiss each of these counts. The motion became fully submitted on August 13.

DISCUSSION

A. Legal Standard

Aleynikov moves to dismiss all counts of the Indictment pursuant to Rule 12(b)(3)(B), Fed. R. Crim. P. Rule 12(b)(3)(B) provides that "at any time while the case is pending, the court may hear a claim that the indictment or information fails to invoke the court's jurisdiction or to state an offense." Fed. R. Crim. P. 12(b)(3)(B).

The law on determining the sufficiency of an indictment is well-settled. Under the Federal Rules of Criminal Procedure, the indictment "must be a plain, concise, and definite written statement of the essential facts constituting the offense charged" and must include the "statute, rule, regulation, or other provision of law that the defendant is alleged to have violated." Fed. R. Crim. P. 7(c)(1). There are also "two constitutional requirements for an indictment: 'first, [that it] contains the elements of the offense charged and fairly informs a defendant of the charge against which he must defend, and, second, [that it] enables him to plead an acquittal or conviction in bar of future prosecutions for the same offense.'" United States v. Resendiz-Ponce, 549 U.S. 102, 108 (2007) (quoting Hamling v. United States, 418 U.S. 87, 117 (1974)); see also United States v. Yannotti, 541 F.3d 112, 127 (2d Cir. 2008).

But, it is also well established that "an indictment need do little more than to track the language of the statute charged and state the time and place (in approximate terms) of the alleged crime." Yannotti, 541 F.3d at 127 (citation omitted); see also United States v. De La Pava, 268 F.3d 157, 162 (2d Cir. 2001). Thus, the indictment need only allege "the 'core of criminality' the government intend[s] to prove" at trial, and consequently, the indictment is "read... to include facts which are necessarily implied by the specific allegations made." United States v. Rigas, 490 F.3d 208, 229 (2d Cir. 2007) (citation omitted).

On a pretrial motion to dismiss, "the facts alleged by the government must be taken as true." United States v. Velastegui, 199 F.3d 590, 592 n.2 (2d Cir. 1999). It is not proper to weigh the sufficiency of the evidence underlying the indictment, unless the Government has already made "a full proffer of the evidence it intends to present at trial." United States v. Perez, 575 F.3d 164, 166 (2d Cir. 2009) (citation omitted).

This is because indictments are "not meant to serve an evidentiary function," but rather, "to acquaint the defendant with the specific crime with which he is charged, allow him to prepare his defense, and protect him from double jeopardy." United States v. Juwa, 508 F.3d 694, 701 (2d Cir. 2007) (citation omitted).

An indictment may be dismissed, however, where it "fails to allege the essential facts constituting the offense charged." United States v. Pirro, 212 F.3d 86, 91 (2d Cir. 2000). Indeed, "an important corollary purpose" of the requirement that an indictment state the elements of an offense "is to inform the court of the facts alleged, so that it may decide whether they are sufficient in law to support a conviction, if one should be had." Russell v. United States, 369 U.S. 749, 768 (1962) (citing United States v. Cruikshank, 92 U.S. 542, 558 (1875)). Dismissal is required where the conduct alleged in the indictment as a factual basis for the offense is not actually prohibited by the language of the statute. See, e.g., Pirro, 212 F.3d at 91, 93 (affirming dismissal where Government's proposed proof would not establish a crime within the terms of the statute); United States v. Pacione, 738 F.2d 567, 572 (2d Cir. 1984) (same); United States v. Mennuti, 639 F.2d 107, 113 (2d Cir. 1981) (same), abrogated in part on other grounds, Russell v. United States, 471 U.S. 858 (1985).

Oftentimes, the adequacy of an indictment will turn on the interpretation of statutory language. "Federal crimes, of course, are solely creatures of statute." Dowling v. United States, 473 U.S. 207, 213 (1985) (citation omitted). "[S]tatutory 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 (1985) (citation omitted). When the statutory language is clear, there is no need to examine the statutory purpose, legislative history, or the rule of lenity. See Boyle v. United States, 129 S.Ct. 2237, 2246 (2009); see also United States v. Nelson, 277 F.3d 164, 193 (2d Cir. 2002).

B. Count One: Theft of Trade Secrets

Count One of the Indictment charges Aleynikov with theft of trade secrets in violation of 18 U.S.C. § 1832(a)(2) and (4):

From at least in or about May 2009, up to and including on or about July 3, 2009,... SERGEY ALEYNIKOV, the defendant, unlawfully, willfully, and knowingly, without authorization copied, duplicated, sketched, drew, photographed, downloaded, uploaded, altered, destroyed, photocopied, replicated, transmitted, delivered, sent, mailed, communicated, and conveyed a trade secret, as that term is defined in Title 18, United States Code, Section 1839(3), and attempted so to do, with intent to convert such trade secret, that was related to and included in a product that was produced for and placed in interstate and foreign commerce, to the economic benefit of someone other than the owner thereof, and intending and knowing that the offense would injure the owner of that trade secret, to wit, ALEYNIKOV, while in New York, New York and elsewhere, without authorization copied and transmitted to his home computer Goldman's proprietary computer source code for Goldman's high-frequency trading business, with the intent to use that source code for the economic benefit of himself and his new employer, Teza. (Emphasis added.)

Aleynikov moves to dismiss Count One because the Indictment does not allege that the trade secret at issue here -- the source code for Goldman's Trading System -- is related to or included in a "product" that is "produced for or placed in interstate and foreign commerce." According to Aleynikov, a "product," as used in 18 U.S.C. § 1832(a), must be a tangible item of personal property distributed to and used by the commercial public. Because Goldman has never licensed or sold the Trading System, and has no intention of doing so, Aleynikov contends that the Trading System is not a "product produced for or placed in" commerce within the meaning of § 1832. Aleynikov does not dispute that the trade secret he allegedly stole is "related to or included in" the Trading System.

Describing the clause of § 1832(a) on which Aleynikov's motion depends as the "jurisdictional element" of the offense, the Government asserts that the Trading System is indeed a "product" within the meaning of § 1832 that has an "obvious and indisputable connection" to interstate and foreign commerce.

The Government thus agrees with Aleynikov that the trade secret at issue in Count One is the source code, and that the relevant "product" is the Trading System. In addition to the facts outlined in the Indictment, the Government proffers that it expects to prove at trial that there are high-frequency trading systems that may be purchased by securities trading firms, and that Goldman maintains computers in the ...


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