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Huge Goldman Sachs FAIL as 32 megs of proprietary trading code stolen, and uploaded to a German server

[Sorry for the mother of all paste-os, readers. I pasted the whole post in, instead of a YouTube. Fixed now. Multi-tasking... --lambert]

See Reuters and especially the comments at Zero Hedge for this incredibly Byzantine story on Goldman Sachs (who, in addition to running financial policy for the administration at Treasury and the Fed, are also members of the Plunge Protection Team (q.v.)).

Shorter: Sergey Aleynikov, VP of equity strategy of Goldman Sachs, was arrested at Newark airport Saturday, July 4 by the FBI. Aleynikov is alleged to have encrypted, compressed, and uploaded 32 megs of ultra top-secret Goldman Sachs quant trading proprietary code to a website in Germany, where it's been available for over a month to... Well, anybody that Aleynikov wanted to make it available to.

Even shorter: Somebody put the Goldman Sachs family jewels in a jar and sold the jar on eBay.

Yikes. Of course, if you want to put on the tinfoil hat -- and when the going gets tough, the tough get foily -- you might start wondering why the July 4 arrest: That's even better than 5:00 on a Friday. Or you might wonder whether Aleynikov was a mole of some sort, as opposed to just being a thief. Or you might wonder whether Goldman knew about the theft all along, but hadn't let the thieves know that they knew, and were manipulating the manipulators on that basis -- maybe by feeding false information through channels embedded in the software (and 32 megs of compressed source code is a lot of code; hard to imagine what couldn't be buried in there). Which would make Aleynikov not a mole, or a thief, but a double agent... So, you see. Complicated. Obfuscated*. Maybe -- from the perspective of one or two now extremely rich or richer people, not a FAIL but SUCCESS? Who knows?

For peasants like us, though, there are two main issues, which Durden raises:

First, exactly how manipulated has the market been and for how long?

Now the real question here is, does [GS?] feel lucky? Because the code has supposedly been in the hands of an outsider for over a month, one might suspect that anyone who wanted to has had ample opportunity - if the holder(s) wished to sell... Would that have anything to do with the even weirder than usual market action over the past 2-3 weeks: after all it is the very Goldman Sachs (which may or may not be the target of this program trading industrial espionage) which is the primary SLP on the world's biggest stock exchange.

Second, what about the national security implications?

Another major question: do Goldman and the NYSE not have a fiduciary responsibility to announce to both shareholders and any interested parties if there has been a major security breach in their trading operations? Certainly this seems like a material piece of information: given that program trading accounted for 49% of all NYSE trading last week, and Goldman as recently as one week ago represented about 60% of all principal program trading, will this be called an issue threatening the National Security of the United States. Shouldn't all market participants be aware that there is some rogue code in cyberspace that can be abused by the highest bidder, who very likely will not be interested in proving the efficient market hypothesis? What will happened when said bidder goes about trying to front run none other than the "Financial Institution"?

Just yikes.

It's another FAIL, isn't it? Just one more FAIL in The Big FAIL....

NOTE * Fun fact: Aleynikov and his wife are competitive ballroom dancers, according to Reuters. Great metaphor. Here's the YouTube:

UPDATE See Clusterstock:

[T]he theft coincides with a breath-taking decline in the automated "program" trading activities of Goldman. In recent months, program trading--batches of trades of multiple stocks initiated by computer programs--on the NYSE has been dominated by Goldman Sachs. Just three weeks ago, the NYSE reported that program trades Goldman made for its own account represented 60% of all program trading. The following week, Goldman didn't even show up on the list of program traders.

Er, didn't Goldman Sachs have some kind of duty to tell somebody that their proprietary trading software had been stolen and exposed on a German server for a month? Maybe like the government? Or -- absurd as this may seem -- their clients?

NOTE I just talked to Max in Legal, who insisted that I put "allegedly" everywhere. Consider it done.

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Submitted by lambert on

... but a bag of snakes.

Yes, it does -- the theory is they were hiding that data to cover their tracks on the theft, if I understand the finance blogs correctly (and I might not). Check Durden.

Could. One feeling I have about a lot of this sort of thing is that since the detail is so obfuscated, for us to figure it out is time-consuming and often impossible.

Just remember... We're on the hook to these guys for $15 trillion dollars...

BDBlue's picture
Submitted by BDBlue on

or some other big Wall Street alum:

• Robert Hormats, Vice Chairman of Goldman Sachs, is to be installed as Under Secretary of Economics, Business, and Agricultural Affairs.

• Jacob Lew, Chief Financial Officer of Citigroup Alternative Investments Group, as Deputy Secretary of State (Lew’s dept. lost $509 million in the Q1 2008)

• Michael Froman, Citigroup, Deputy National Security Adviser for International Economic Affairs. Froman was formerly Chief of Staff to Robert Rubin at Treasury, before following him to Citi.

• Froman’s deputy, David Lipton, ran Citi’s global country risk management effort.

• Lewis Alexander, Citigroup’s chief economist and now Counselor to Treasury Secretary Timothy Geithner

• Neal Wolin, President and COO, Hartford Insurance Company, Property and Casualty Group now Deputy Treasury Secretary (Hartford received $3.4 billion in TARP funds).

• Gary Gensler, Goldman Sachs partner, now Chairman of the Commodity Futures Trading Commission Note: It was Gensler who was a key proponent (as Clinton’s Assistant Secretary of Treasury) in pushing the Commodity Futures Modernization Act of 2000.

• Mark Patterson, Goldman Sach’s lobbyist, now Treasury Chief of Staff

• Linda Robertson, Enron lobbyist, Chief PR Federal Reserve

They forgot to mention that Neal Wolin was General Counsel of Treasury when Summers was the Secretary. He's one of Larry's boys. And Linda Robertson worked at Treasury during the Clinton Administration before going to Enron.

oceansandmountains's picture
Submitted by oceansandmountains on

I had to hustle off. I see someone else gave the Spiegel link. That's where I heard about it.

bendjamin's picture
Submitted by bendjamin on

What I find surprising (and worth more invesigation) is the expediency the FBI served in exercising “justice” in this case. If this were a “Joe Sixpack” investor– or even a 2nd tier broker-dealer, I doubt we would have had a response from a government agency for months.

So not only does Goldman Sachs gets “white glove” goverment service (and why not, since many of our economic leaders have served there), they get the benefit of having the accused named (you know the dirty Russian commie stealing national secrets on Independence Day, like 24 hour payday loans)– and no mention made of the victim… in the affadavit.

If you think Goldman is going to get nailed on this, think again. Unless they get wiped on program trades based on cracking this program code.