A Goldman trading scandal? (Goldman Sach's automated trading software stolen)

Reuters ^ | 07/05/09 | Matthew Goldstein

[TigerLikesRooster]

A Goldman trading scandal?

Posted by: Matthew Goldstein

Did someone try to steal Goldman Sachs’ secret sauce?

While most in the US were celebrating the 4th of July, a Russian immigrant living in New Jersey was being held on federal charges of stealing top-secret computer trading codes from a major New York-based financial institution—that sources say is none other than Goldman Sachs.

The allegations, if true, are big news because the codes the accused man, Sergey Aleynikov, tried to steal is the secret code to unlocking Goldman’s automated stocks and commodities trading businesses. Federal authorities allege the computer codes and related-trading files that Aleynikov uploaded to a German-based website help this major “financial institution” generate millions of dollars in profits each year.

The platform is one of the things that apparently gives Goldman a leg-up over the competition when it comes to rapid-fire trading of stocks and commodities. Federal authorities say the platform quickly processes rapid developments in the markets and uses top secret mathematical formulas to allow the firm to make highly-profitable automated trades.

The criminal case has the potential to shed a light on the inner workings of an important profit center for Goldman and other Wall Street firms. The federal charges also raise serious questions about the safeguards Wall Street firms deploy to protect their proprietary trading systems.

The criminal case began to unfold on the evening of July 3 when Aleynikov was arrested by FBI agents at Newark Liberty Airport, after returning from Chicago. Aleynikov had just started a job with another firm in Chicago, after leaving the big firm in NY in early June. It appears the financial institution allegedly victimized by Aleynikov had alerted federal authorities that its former employee might be up to no good.

[ovrtaxt]

I have a problem with people who engage in insider trading and profit from bubble creating schemes under a favored status with the government- to the detriment of average individual investors. Jagoff.

[FreepShop1]

Hopefully he got the codes to someone in time.

[Mouton]

Did the NYSE, SEC, FED or someone else ever disclose who dumped that masssive amount of dollars on the exchange markets last September trying to undermine the entire financial system??? Probably not would be my guess and my further guess it has something to do with these guys.

Vince

[tcostell]

...but you apparently have no problem with completely unsupported allegations of wrongdoing so long as the person accused someone you don't like....which I guess makes you perfect for FR in 2009.

This forum has turned into the worst kind of caricature of conservatism. These days it's just a collection of people who don't know what they're talking about, posting lies about people they've never met, and demanding that they be strung up for crimes then never committed, because they read a story that they didn't understand.

All of you people should be ashamed of yourselves. In the last 9 months I've read more outright stupidity on FR than I ever thought conservatives were capable of. But if you're an example, then I guess 'conservative' doesn't mean what it used to.

[SaraJohnson]

Why does no one in Congress address this September sell off? Who did it and why did they do it? How do we keep them from doing it again to bring down our economy?

[ovrtaxt]

Conservative still means “small government advocate”. It never meant anything else.

So when you have government using an entity like the global banking cartel running rampant and ruining lives, this is the attitude you get.

[FreepShop1]

I'm betting that even if he did post the code on the internet you wouldn't be able to make heads or tails of it anyway.

Sounds like the code could just be changed in a second. Does not sound like he posted the actual formulas or program trading algorithms.

[tcostell]

These days FreeRepublic is as anti-capitalist as any liberal forum, and that very much applies to you as well. If you don't see how your opinions represent that view then you aren't very smart, and you deserve what you're going to get from your liberal masters. You are playing right into their hands.

You should be embarrassed and ashamed, and when you realize how well you're being played by the liberals you probably will.

[ovrtaxt]

I’m anti-capitalist? lol

I’m anti-ponzi scheme. But I suppose Ponzi was a capitalist...

[plenipotentiary]

“In the past, call routes through switches and carriers were decided through a combination of Microsoft Excel spreadsheets using a manual process”

So this is how the “Masters of the Universe” made Billions? What a hoot!

[TigerLikesRooster]

Of course, they are more equal than others.

[pointsal]

Always nice to have the dealer in the “card” game taking a little slice of the pot. /sarc

[varon]

In the last 9 months I've read more outright stupidity on FR than I ever thought conservatives were capable of.

I agree with your assessment about the quantity of ouright stupidity but have a suspicion that most of the stupidity was posted by Republicans, not conservatives.

[tcostell]

That's a fair criticism and I would agree with it but for the fact that so many of the Republicans you mention call themselves conservative and in fact believe themselves to be conservatives. Take for example all the totally baseless and completely unsubstantiated criticism of Goldman listed above.

With an increasingly few individual exceptions (all of whom are as upset about what's happened here in the last year or so as I am) I stand by this assessment:

This forum has turned into the worst kind of caricature of conservatism. These days it's just a collection of people who don't know what they're talking about, posting lies about people they've never met, and demanding that they be strung up for crimes then never committed, because they read a story that they didn't understand.

[Lurker]

This forum has turned into the worst kind of caricature of conservatism. These days it's just a collection of people who don't know what they're talking about, posting lies about people they've never met, and demanding that they be strung up for crimes then never committed, because they read a story that they didn't understand.

Well put.

[Hawk1976]

Would it be fairer if he stated that he had a concern that GS and the other large banks are using these programs to manipulate the market?

That’s a concern I have. It’s also why my money is on the sidelines, where it will remain for the time being.

[BikerJoe]

Would it be fairer if he stated that he had a concern that GS and the other large banks are using these programs to manipulate the market? That’s a concern I have. It’s also why my money is on the sidelines, where it will remain for the time being.

Let's get back to basics...

The purpose of the markets is to raise capital for companies.

The (original) purpose of companies like GS was to assess the short and long-term potential of companies being traded on the market and to decide for their clients if a company was "a good bet", then invest in it.

When things have finally devolved into derivatives markets with (by at least one estimate, an exposure that is four times the replacement cost of human civilization) and valuations hinging on microsecond trades, you get the feeling that prudence and "being adult" has gone out the window and that there is very little difference between Wall Street and the Vegas Strip.

[jiggyboy]

The FBI is just getting around to gentle prodding of Angelo Mozillo of Countrywide for his insider trading and lies in 2005, but it sure didn’t them FBI long to get on the case when Goldman Sachs is the customer, oops I mean victim.

[Arguendo]

Program trading has nothing to do with insider trading. Do you have any idea what you’re talking about?

[r9etb]

When things have finally devolved into derivatives markets with (by at least one estimate, an exposure that is four times the replacement cost of human civilization) and valuations hinging on microsecond trades, you get the feeling that prudence and "being adult" has gone out the window and that there is very little difference between Wall Street and the Vegas Strip.

It's that last part that has me thinking ... the automated trades are a huge (the primary?) component of the total trading volume market. The purpose of the codes described here is to make money off of small, short-term fluctuations in stock prices.

There's no explicit connection with the underlying value of the stocks being traded -- this is just a way of making money, or losing less of it, in response to momentary fluctuations.

The resultant disconnect between profits on the one hand, and sound investments on the other, is the sort of thing that creates "bubbles."