Tuesday, July 07, 2009

Goldman Sachs, Sergey Aleynikov and alleged theft of trade secrets - hey, wait a minute, what did that prosecutor at the bail hearing say?

KEY UPDATE: 7:30pm, Tuesday July 7, this static.reuters.com link contains a purported bail hearing transcript in Microsoft Word's *.doc format containing comments of the prosecutor, in context, that have caused the stir that Goldman Sachs has owned and used over time a program capable of manipulating the markets [starting at transcript mid-p.6 to p.8 where the prosecutor in argument makes the factual assertion "the bank has raised a possibility that there is a danger that somebody who knew how to use this program could use it to manipulate markets in unfair ways."] That's what the furor of speculation is about, and the basis for the GATA complaint letter to federal regulators seeking an official inquiry. See what you think.
...............



The photo is Sergey Aleynikov, from here, the LaBron James of software development, without the NBA body, presumably without tattoos. Bloomberg has reported:

At a court appearance July 4 in Manhattan, Assistant U.S. Attorney Joseph Facciponti told a federal judge that Aleynikov’s alleged theft -- the largest breach ever at the [Goldman Sachs investment] bank -- poses a risk to U.S. markets. Aleynikov transferred the code, worth millions of dollars, to a computer server in Germany, and others may have had access to it, Facciponti said, adding that New York-based Goldman Sachs may be harmed if the software is disseminated.

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,” Facciponti said, according to a recording of the hearing made public yesterday. “The copy in Germany is still out there, and we at this time do not know who else has access to it.”


[italics added] Cute, eh? My immediate impression was identical to that of J.S. Kim, who already put it on the web, my thoughts plus much more, posted by Kim here:

It’s curious to note that Goldman Sachs has admitted that it has developed trading software that could be used to, in their own words, “manipulate markets in unfair ways”, yet nobody in the mainstream media has questioned whether Goldman Sachs was / and is using its proprietary trading platform to manipulate markets in unfair ways. Only extremely naive investors with zero understanding of how global stock markets operate would deny that there has been continual and excessive intervention into US stock markets to prop them up over the past several months.

The announced breach of Goldman Sach’s trade secrets coincided with an inexplicable omission of Goldman Sachs from the NYSE’s weekly report of the most active trading programs for the week ending June 26, 2009, though on Monday, July 6, 2009, a NYSE spokesman explained to Reuters that “the exchange was to blame for Goldman missing from the list, adding the bank reported its data to the exchange correctly and on time.” Even if this fishy explanation regarding the omission of Goldman Sachs’s trading activity from this weekly report is true, Goldman Sachs in light of this recent development, has undoubtedly had to proceed much more cautiously with their trading activities given that there may be unknown persons out there privy to their every move right now.

What is highly curious, in my mind, is the fact that oil plunged 10.5% from a high of $71.60 to a low of $64.05 in just the last four trading days and the fact that US stock markets plummeted on July 2nd, before a major US holiday weekend, at a time when Goldman Sachs has most likely not been participating in markets at their regular activity level given these recent developments. Typically before a major US holiday, trading volume on US markets is very light. During the recent rally in US markets from early March to early June, unidentified institutions have taken advantage of very low trading volumes to prop up US markets whereas higher than normal trading volumes often resulted in an aberration of a heavy down day. I fully expected July 2nd, due to the low trading activity that normally accompanies a pre-holiday market, to be a day when US markets would be propped up, yet July 2nd was a very heavy down day in US markets.

Secondly, every trader rcognizes the importance of Goldman Sachs’s activity in crude oil markets. In fact, if Goldman Sachs makes significant changes to the weightings of its GSCI (Goldman Sachs Commodity Index) components, virtually every commodity fund manager in America accordingly changes the weightings of his or her portfolio to mirror the changed weightings of the GSCI. I haven’t researched how many times in recent history the price of oil has plunged 10.5% in four trading days, but I’m guessing not too often.[...]


Unprincipled people knowing how to use the Goldman Sachs software could use that Goldman Sachs software to manipulate the market in unfair ways.

Oh, really? Spin that out again, please.

That pack of traders at Goldman, presumably they know how to use the firm's software, and connecting dots about the potential for unfair manipulation ...

Is Goldman Sachs a trusted, trustworthy firm?

That's questioned in the reader comment, here. The comments on the Kim item are not favorable to Goldman; here. Ditto, here.

It is hard to love that bunch. Figure this, if some third person could unfairly manipulate the market knowing what Goldman's trades are as they're being made, moving millions or billions here or there; what manipulation vista is there if you not only know what Goldman's doing, but you are the finger on the Goldman keyboard; doing it, not just knowing how the money's being manipulated but doing the actual manipulation. More meat in the fire, more control of what cooks, how much, how long. Too big to fail? Too big to prosecute? Too big to cut through the protective layers of government and lobbyist interests at stake? It's all worth a thought.

The FBI agent's charging affidavit is online, here. (From within the "ZERO HEDGE" blog's coverage, here). I could not locate a bail hearing transcript online - Bloomberg only said it was available but gave no posting link for downloading - so I could not see what the prosecutor said in context. If anyone has access to an online copy of the bail hearing transcript please send an email or post the link in a comment.

Reading the affidavit [downloadable from here, also] is informative - Goldman's internal procedures did not block the activity of the employee, but they were able to recover a trail of access and activity suggesting cause to identify the individual and to allege wrongful acts.

Big Brother watches all, for the good of all. Know that. The NSA probably held identical tracking info to that which the FBI agent presents as apparent hearsay from Goldman [not identified in the charging papers, only later identified as the firm involved, in reporting coverage].

This all suggests, buy gold, demand delivery, put it in a sock between mattress and box springs, and you are safer than putting your faith into the hands of those possesssing the software power to manipulate the market in unfair ways, or in firms trading against such an operation. Is Goldman a mob of mobsters; in expensive well tailored suits? It's all inferential, and some blog readers, (we know how reliable their thinking is), some of them are, of all things, suspicious - even accusatory.

_____UPDATE_______
The format for updates will be if further items appear interesting a simple link will be appended to this update, starting -

Here.

Here.

Here and here.

Here.

Comments, here.

Here.

Here.

That's enough. The lawyer's phrasing was jumped on immediately by everyone and you wonder how a lawyer with that kind of skill set gets that kind of responsibilities. Probably family.

Anyway, it is a second hand [Bloomberg] report of one sentence w/o context [a transcript they say is available but don't produce/link] where the lawyer is arguing hearsay - the bank says ...

There's enough weasel room that it will be interesting to see the spin meisters at work in the next few days.

A bad jedi knight could misuse the force. Wow, that's news to me. Good that only the good guys are let into Goldman.