[See the comments a Big Picture for other views. I'm not sure on the front-running. But do check this video. Something stinks here -- if only Goldman Sachs getting, like, same-day service from the FBI. --lambert]

RL calls, so I can't do justice to these posts. Following up on this post ("So, if Goldman Sachs software could 'manipulate the market' AFTER it was stolen, did GS use it to manipulate the market BEFORE?; these guys are answering not just "Yes," but "Fuck, yeah!") via Yves, this from Karl Denninger's Market Ticker:

#faffff">Something really ugly popped up on Daily Kos yesterday late in the afternoon.....

#faffff">

...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.

  If true, this should be highly illegal, and would, in any sane country result in something like what happened to Arthur Andersen...

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.

(Denniger gives statistical analysis to supprt this thesis, which is beyond my ability to evaluate; however, it's clear that something changed on July 4 weekend which, coincidentally or not, was when Goldman Sachs programmer Sergey Aleynikov was arrested for having stolen a buttload of Goldman Sachs proprietary trading software.)

As for "God help Goldman," this is just silly; Goldman Sachs can get retroacitive immunity for breaking the law whenever it wants, just like the telcos!

Check out the Kos post, which is uber-technical. The bottom line, though, is that Sergey Aleynikov had exactly the kind of technical expertise to develop the kind of "sniffing" technology that would let Goldman Sachs know, in advance, what everybody else was about the trade, and to place their own trades accordingly.

Yikes!

NOTE Good thing Goldman Sachs is running the country, otherwise they might be held accountable for this sort of thing.