Posted on 07/08/2009 1:06:48 PM PDT by crosstimbers
FLASH** Goldman Code Theft BOMBSHELL?
Something really ugly popped up on Daily Kos yesterday late in the afternoon.....
...GS, through access to the system as a result of their special gov't perks, was/is able to read the data on trades before it's committed, and place their own buys or sells accordingly in that brief moment, thus allowing them to essentially steal buttloads of money every day from the rest of the punters world.
Two things come out of this:
1. If true, this should be highly illegal, and would, in any sane country result in something like what happened to Arthur Andersen...
(2. ... is way off point....)
God help Goldman if this is true and the government goes after them. This would constitute massive unlawful activity. Indeed, the allegation is that Goldman alone was given this access!
God help our capital markets if this is true and is ignored by our government and regulatory agencies, or generates nothing more than a "handslap." Nobody in their right mind would ever trade on our markets again if this occurred and does not result in severe criminal and civil penalties.
There apparently is reason to believe that Sergey might have been involved in exactly this sort of coding implementation. Specifically, look at the patent claims cited on DailyKos; his expertise was in fact in this general area of knowledge in the telecommunications world......
This is precisely the sort of thing that a Unix machine, sitting on a network cable where it can "see" traffic potentially not intended for it, could have an interface put into what is called "promiscuous mode" and SILENTLY sniff that traffic!
ASSUMING THE TRAFFIC IS PASSING BY THE MACHINE ON THE WIRE THIS IS TRIVIALLY EASY FOR ANY NETWORK PROGRAMMER OF REASONABLE SKILL TO DO. IF THAT TRAFFIC IS EITHER UNENCRYPTED OR IT IS EASY TO BREAK THE ENCRYPTION.....
Folks, I have no way to know what the code in question does, but if there's anything to this - anything at all - there is a major, as in biggest scam of the century - scandal here - something much, much bigger than Madoff or Stanford.
What would this mean, if it was all to prove up?
It would mean that Goldman was able to "see" transaction order flow - bid, offer, and execute messages - before they were committed in the transaction stream. Such a "SNIFF" would be COMPLETELY UNDETECTABLE by the sender or recipient of the message.
The implication of this would be that they would be able to front-run any transaction where the data was visible to them, thereby effectively "stealing pennies" from each transaction they were able to front-run.
Again: I have absolutely nothing on the content of the allegedly-stolen code nor can I validate the claim made that Goldman had "special network access." Nothing. All I have to go on with regards to "market manipulation" (which such a program would be, writ large!) is the statement of the US Attorney that I cited in my earlier Ticker.
This may be nothing more than a crazy conspiracy theory put out by someone at Daily Kos. But consider the following:
The last few days the the market has traded "organically." I and many other market participants have noted that prior to the week before July 4th the market had been acting "very odd" - normal correlations between interest rate, foreign exchange the the stock markets had been on "tilt" for the previous couple of months, with the amount of "tiltage" increasing dramatically in the last three or four weeks. In fact, many of my usual indicators that I use for daytrading had become completely useless. Suddenly, just before the July 4the weekend, everything started correlating normally again. I have no explanation for this "light-switch" change but it aligned almost exactly with the day the NYSE had "computer problems" and extended trading by 15 minutes. Was there a configuration change made to their networking infrastructure, one asks?
Zerohedge's information, if you believe it, seems to point toward some sort of distortion. The cite above claims statistically "as likely as an asteroid hitting earth it is not true" proof of distortion in the market. I have not analyzed the data to independently validate that conclusion, but even if the odds of these "effects" in the market being random chance are only as good as getting hit by a tornado this afternoon......
Every market participant deserves answers on this point. Specifically to the NYSE and all other markets where colocation connections are made and allowed:
Was it possible for message traffic to be "seen" by computers on your network and colocated into your infrastructure by other than the originator and recipient? That is, was it physically possible for anyone to "sniff" messages to and from other market participants. If it was possible, is it no longer possible, and if so, when was that change made? I believe the SEC and FBI must direct a subpoena at all market exchanges for an under-oath answer to question #1. If the answer to that question is "yes" then every market participant who had or has equipment colocated on the NYSE infrastructure must be immediately served with a subpoena for a true and complete copy of all software operating on every machine connected to said infrastructure for immediate forensic investigation to ascertain if any participants were indeed "sniffing" traffic and front-running orders.
The charge made on the pages of Daily Kos is incredibly serious. If this happened it is a case of literal robbery of every market participant for the entire duration of the time that the code in question was executing on the network, with losses to market participants potentially running into the hundreds of billions of dollars.
Market participants deserve an answer to these questions.
I have believed instensly for the past two years that SOMEONE knows what the majority of people are doing on trades and that someone was aggregating data in bulk to make trades because stocks frequently trade the exact opposite of what they should be doing and such is a VERY common occurence.
And another thing. Look back over the past month or two and see how many times the market traded in negative territory for most of the day, but then in the last 30-15 minutes, suddenly goes positive. How does that happen? Economic news gets worse and worse, but the market goes up.
ZeroHedge has been on top of GS quite possibly (and legally) front-running their clients:
http://www.zerohedge.com/node/12083
Cox was a major, major disappointment, but he was from our side and has to be the guy responsible.
"This weekend I read Matt Taibbi's jaw-dropping broadside against Goldman Sachs in Rolling Stone - it's excerpted online, though I suggest buying a copy, even if you have to brown-bag it thanks to the Jonas Brothers cover. Anyway, the CME comes up, if briefly:"
"And instead of credit derivatives or oil futures or mortgage-backed CDOs, the new game in town, the next bubble, is in carbon credits - a booming trillion-dollar market that barely even exists yet, but will if the Democratic Party that it gave $4,452,585 to in the last election manages to push into existence a groundbreaking new commodities bubble, disguised as an 'environmental plan,' called cap-and-trade....
"If the plan goes forward as expected, the rise in prices will be government-mandated. Goldman won't even have to rig the game. It will be rigged in advance."
Taibbi explains how:
"The feature of this plan that has special appeal to speculators is that the 'cap' on carbon will be continually lowered by the government, which means that carbon credits will become more and more scarce with each passing year. Which means that this is a brand-new commodities market where the main commodity to be traded is guaranteed to rise in price over time."
Not only has Goldman been lobbying for the bill, to the tune of $3.5 million last year, a process which begun when the current Treasury chief of staff was one of their lobbyists, Goldman Sachs owns 10% of the Chicago Climate Exchange.
Cap-and-trade sounds good, perhaps, but as Taibbi argues, you should be skeptical of the government setting up an essentially competition-free marketplace:
"'If it's going to be a tax, I would prefer that Washington set the tax and collect it,' says Michael Masters, the hedge-fund director who spoke out against oil-futures speculation. 'But we're saying that Wall Street can set the tax, and Wall Street can collect the tax. That's the last thing in the world I want. It's just asinine.'"
Quite right! Even if this has been going on for dozens of years, it
certainly must be Bush’s fault, after all just about everything else is.
Madoff’s market making firm was doing essentially this by front running NYSE floor trades electronically through the Cincinnati exchange. Others did it through Chicago.
Island market makers which was part of Datek discount Brokerage did this as well. Jeffrey Citron later founded Vonage - yes that Vonage.
If you had a Datek account they were “sniffing” your trades and trading in front of you.
http://www.rgm.com/articles/nytimes.html
This Island/Datek scam went on for a decade.
Let’s see - if small timers were able to do this and GS owns more Senators than you can count - what do you think?
Cox had no clue about Wall Street. “has to be the guy responsible.” People on our side are so naive about such things. They underestimate how corrupt things are from top to bottom.
Cox was awful but he had little control on what a lot of the staff in NYC and DC was doing.
The gum shoe SEC field people are usually pretty good but the upper layers of management is filled with a lot of hard core liberal Dems. They run the SEC along with NE Senators from states like NY, NJ, CT, MA.
This could lead to a lot of people going down.
http://zerohedge.blogspot.com/2009/06/goldman-sachs-engineering-every-major.html
Never mind the facts, the charge is so serious!
A vague "something didn't feel right, so I'm warping some unrelated news story to explain it" is the realm of tinfoil hats. Ah, right, it's Daily Kos.
front-running, painting the tapes, or just plain looking at the pre-trade data—it’s all wrong, but the average Joe would look at you like a fool if you tried to explain it to them, so therefore they do not press for action. This is nothing new, but I keep hope that some day some one will make it plain enough for the average guy to understand that the will demand oversight and changes.
BS, pure BS
There’s a lot of bizarre stuff going on in the markets in the last week or so ... you got a better explanation?
Program trading. The late summer 2008 coup happened largely in Chicago at the CME, CBOT, CBOE exchanges ( the cap & trade exchange - carbon credits is also there).
Goldman Sachs and others have automated trading programs. They also set up things to happen just not trade on events. They create events in the market to sucker other investors.
My guess is this Russian programmer was off the charts smart. These companies usually vault the code so he may not have seen all the software code. Someone in Russia like a billionaire(s) probably got in touch with him or vice versa. It appears, the Russian somehow was able to get a working version out of GS and maybe even the source code.
My guess is this program is now running in London or Russia for some Russian billionaire. Laws? The laws are so gray on program trading and information.
This Russian guy will be an interesting story. The software code is gone and GS will try to figure out a way to work around it. No way whomever in Russia has it will give it back. This guy also knows what GS has been doing. So Goldman is not going to let him go back to Russia to keep quiet. This guy will not talk to reporters or write a book. My guess is he will get “shanked” in jail or they tell him if he is a quiet he gets 5 years - if he talks he gets 50 years plus a shanking.
That all rings very true. But when we get our guys in and confirmed, they’re supposed to deal with that stuff whether they have to bring in auditors and forensics or what have you. Cox’s resume was actually better for that than most. Oh well, I’m surprised if this is true that Goldman risked it by going to the cops on this guy.
Look at the posts in this thread where avg Joes are saying it is all BS.
I know one thing for sure - this Russian is being treated like he killed 15 people. My guess is he took some of GS crown jewels and he knows how things really work at GS.
People would rather be fooled, be naive and have all their money stolen than question these things. Sad.
People have no concept the level of corruption. We are talking about hundreds of billions of dollars here.
ping - and just how many GS alumni are in gubmint? Follow the money, geithner...oh, wait a minute...
Good luck running a large organization when you are clean and the people you are “managing” hate your guts and are against you. Ask the unemployed white collar employees at GM how that works with the UAW or ship owners when longshoreman steal cargo.
“They are supposed to deal with that stuff.” Yeah we are supposed to have laws in this country to like voting laws etc.
GS controls the media and prosecutors so nothing this guy says will ever get out to the public. I am sure he has been told what will happen if he talks. They probably have friends in the Russian mafia who can visit his family.
People have no idea what “companies”, groups or individuals are capable of when hundreds of billions are on the line.
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