Source: http://tsi.brooklaw.edu/cases/united-states-v-aleynikov
Timestamp: 2019-04-19 03:17:12+00:00

Document:
On April 11, 2012, Sergei Aleynikov was acquitted by the Second Circuit court of Appeals of violating § 1832 of the Economic Espionage Act of 1996 (EEA). Following the court's invitation to amend the wording of the interstate commerce requirement in the statute, Congress amended the EEA.
Goldman Sachs ("Goldman") employed Aleynikov in the New York area from May 2007 through June 2009 to develop key high frequency trading ("HFT") source code. HFT software executes a large number of trades in a fraction of a second, generating substantial revenue: just three of Goldman's HFT groups generated a combined $300 million in revenue in 2009. Aleynikov was paid an annual salary of $400,000, the highest salary of the twenty-five programmers in his group.
In April of 2009, he accepted the position of Executive Vice President of Teza Technologies LLC in Chicago at an annual salary of $1.15 million. Teza's founder told Aleynikov that Teza expected to develop an HFT system in six months, whereas the court found that it usually takes years to develop an HFT system.
Over a period of several months, Aleynikov transferred files from his work computer to his home computer. The FBI arrested Aleynikov at Newark Liberty International Airport on July 3, 2009 when he returned from a trip to Teza in Chicago, where he had brought a laptop and flash drive containing Goldman source code. Aleynikov claimed that he had not given the data in the laptop and flash drive to Teva.
Count one: three counts of theft of trade secrets in violation of 18 U.S.C. §§ 1832(a)(2) of the Economic Espionage Act of 1996 (EEA).
Count two: transportation of stolen property in interstate commerce, in violation of 18 U.S.C. § 2314 of the National Stolen Property Act (NSPA).
Count three: unauthorized computer access and exceeding authorized access in violation of 18 U.S.C. §§ 1030(a)(2)(C) and 1030(c)(2)(B)(i)-(iii) of the Computer Fraud and Abuse Act (CFAA).
The district court (Judge Denise Cote) dismissed count three. A jury found Aleynikov guilty on counts one and two and he was sentenced to 97 months of imprisonment followed by a three-year term of supervised release, and fined $12,500. Bail pending appeal was denied because Aleynikov, a dual citizen of the United States and Russia, was feared to be a flight risk. Aleynikov appealed.
The Court of Appeals dismissed both remaining counts.
The court found that the NSPA did not criminalize the taking of intellectual property, citing numerous cases, of which Bottone and Dowling were the most important. In United States v. Bottone, 365 F.2d 389 (2d Cir.1966) (Friendly, J.), the court held that photocopied documents describing a valuable manufacturing process were tangible goods, but noted in dicta that had no photocopies been physically transported across state lines, there would have been no violation of the NSPA. In Dowling v. United States, 473 U.S. 207 (1985), the Supreme Court held in a 6-3 decision that the NSPA did not apply to a bootleg music business because the NSPA was designed to cover theft of physical goods, and the Court refused to extend the NSPA to cover patent and copyright infringement.
More controversially, the court found that the EEA did not cover the theft of source code that was never "produced for" or "placed in" interstate commerce. Under 18 U.S.C. § 1832, Aleynikov was charged with taking a trade secret "that is related to or included in a product that is produced for or placed in interstate or foreign commerce." The court noted that the language of § 1832 was narrower than the language of § 1831 (covering foreign espionage), and held that the court therefore had to construe § 1832 as protecting only those trade secrets that were placed in or were to be placed in interstate commerce. The Goldman Sachs source code, while perhaps used to conduct interstate commerce, was never intended to be placed in interstate commerce.
Thus, the court held that while what Aleynikov did was morally wrong; Aleynikov did not commit a federal crime.
Judge Guido Calabresi concurred, but asked Congress to "state, in appropriate language, what I believe they meant to make criminal in the EEA."
Section 1832(a) of title 18, United States Code, is amended in the matter preceding paragraph (1), by striking "or included in a product that is produced for or placed in" and inserting "a product or service used in or intended for use in".
In 2011, Sergey Aleynikov had been sentenced to more than eight years in prison for the theft of trade secrets under the Economic Espionage Act and transportation of stolen property in interstate commerce under the National Stolen Property Act (NSPA). This case marked the first instance of federal prosecutors using the Economic Espionage Act (EEA) to police the misuse of source code related to high frequency trading. The trade secrets at issue are segments of computer source code from Goldman Sachs & Co. (Goldman) that are used in its high frequency trading platform. In February 2012, the court reversed Aleynikov's conviction of trade secrets theft in a one-page order. In an opinion published April 11, 2012, the Second Circuit held that Sergey Aleynikov was wrongly charged with theft of property because the code did not qualify as a physical object under a federal theft statute. The court held that "because Aleynikov did not ‘assume physical control’ over anything when he took the source code, and because he did not thereby ‘deprive [Goldman] of its use,’ Aleynikov did not violate the [National Stolen Property Act]." It also ruled that Aleynikov was wrongly charged with espionage, since the code was not a product designed for interstate or foreign commerce. The decision called into question the government's ability to prosecute theft of internal trading systems or other internal financial instruments under the Economic Espionage Act.
In December 2010, Aleynikov, a former computer programmer for Goldman Sachs, had been found guilty of stealing proprietary source code from the bank’s high-frequency trading platform. According to the charges, Aleynikov copied hundreds of thousands of lines of code related to Goldman Sachs' high-frequency trading business and relied on the stolen data to develop plans for a similar high-frequency trading platform at a fledgling firm named Teza Techologies. Aleynikov maintains that he merely took publicly available open-source code.
Goldman presented the U.S. Attorney’s Office with evidence of Sergey Aleynikov’s (Aleynikov) theft of segments of code and contended that misuse of this platform could disrupt the financial markets. Acting on Goldman’s tip, on July 3, 2009, the FBI arrested Aleynikov at Newark Airport after he returned from a trip to Chicago to visit his new employer Teza Technologies, LLC (Teza).
Aleynikov held the title of Vice President in Goldman’s Equities Division for two years. He was a member of a team of computer programmers who were responsible for developing and improving portions of the code for Goldman’s high frequency trading platform. Teza approached Aleynikov and offered him the position of Executive Vice President, Platform Engineering at triple his $400,000 salary in order to develop its own high frequency trading business. On June 5, 2009, the eve of his departure from Goldman, Aleynikov copied thousands of lines of code and uploaded them to a German code repository. Aleynikov then covered his tracks by deleting the history of his most recent computer commands. Aleynikov subsequently accessed the code repository and copied the Goldman code to his home computer and then to two other home computers and a flash drive. On his trip to Chicago, Aleynikov brought with him a laptop computer and flash drive containing Goldman’s source code, including some of the code he had copied and uploaded on June 5th. Although Aleynikov admitted that he breached Goldman’s confidentiality provisions, he maintained that he only copied sections of open source code which he had produced.
On February 11, 2010, Aleynikov was indicted in the Southern District of New York, on three counts: theft of trade secrets under the Economic Espionage Act 18 U.S.C. § 1832(a)(2) & (4), transportation of stolen property in interstate commerce under the National Stolen Property Act (NSPA) 18 U.S.C. § 2314, and unauthorized computer access and exceeding authorized access under the Computer Fraud and Abuse Act (CFAA) 18 U.S.C. § 1030(a)(2)(C). The case was assigned to the Honorable Denise Cote.
On July 16, 2010, Aleynikov moved to dismiss the case under Rule 12(b)(3)(B) on the basis that the indictment failed to invoke the court’s jurisdiction or state an offense. The motion was fully submitted on Aug. 13, 2010. On Sept. 3, 2010, the court granted in part and denied in part the defendant’s motion to dismiss, maintaining the charges under the EEA and NSPA, but dismissing the charges under the CFAA. United States v. Aleynikov, 737 F. Supp. 2d 173 (S.D.N.Y. 2010). After a two week long trial, the jury unanimously convicted Sergey Aleynikov both remaining counts, under the EEA and NSPA, on Dec. 10, 2010.
On Dec. 23, 2010, Aleynikov filed a motion for acquittal or new trial. The government’s opposition was filed on Jan. 21, 2011 and Aleynikov filed a subsequent reply on Jan. 28, 2011. On Feb. 24, 2011, the court revoked Aleynikov’s bail and remanded him to the custody of the U.S. Marshal’s Service. On Feb. 25, 2011, Aleynikov filed an interlocutory Notice of Appeal to the Second Circuit regarding the revocation of his bail. On March 14, 2011, Judge Cote denied Aleynikov’s motion for acquittal or a new trial. He was held until his sentencing on March 18, 2011, where he was sentenced to a little over 8 years, followed by 3 years of supervised release, and a $12,500 fine. Aleynikov faced a maximum of 10 years of imprisonment for the theft of trade secrets under the Economic Espionage Act and transportation of stolen property in interstate commerce under the National Stolen Property Act (NSPA). This case marked the first instance of federal prosecutors using the Economic Espionage Act (EEA) to police the misuse of source code related to high frequency trading. The trade secrets at issue are segments of computer source code from Goldman Sachs & Co. (Goldman) that are used in its high frequency trading platform. On March 23, 2011, Aleynikov filed a notice of appeal of his conviction to the Second Circuit.
The court, in its Sept. 3, 2010 opinion, rejected Aleynikov’s argument that source code for Goldman’s trading system is not a “product” that is “produced for or placed in interstate and foreign commerce” under the EEA. In maintaining the EEA charge against Aleynikov, the court clarified the meaning of “product” and “produced for interstate commerce” and explained how the source code that comprised Goldman’s Trading System fell within the ordinary meaning of the terms.
Additionally, the court rejected Aleynikov’s contention that the scope of protection under the EEA differed based on the recipient of the stolen trade secret. Aleynikov presented the argument that theft of a trade secret to benefit “anyone other than the owner thereof” under 18 U.S.C. § 1832 has narrower protection than a trade secret stolen to benefit a “foreign government, foreign instrumentality, or foreign agent” under 18 U.S.C. § 1831. The court noted that although violations under § 1831 and § 1832 bear different penalties, they criminalize identical specified acts.
In February 2012, the Second Circuit reversed Aleynikov's conviction of trade secrets theft in a one-page order. In an opinion published on April 11, 2012, the court held that Sergey Aleynikov was wrongly charged with theft of property because the code did not qualify as a physical object under a federal theft statute. There, the court held that "because Aleynikov did not ‘assume physical control’ over anything when he took the source code, and because he did not thereby ‘deprive [Goldman] of its use,’ Aleynikov did not violate the [National Stolen Property Act]." It also ruled that Aleynikov was wrongly charged with espionage, since the code was not a product designed for interstate or foreign commerce.
This case was the first of several prosecutions for the theft of high frequency trading source code under the EEA. The prosecution of Aleynikov was swiftly followed with the April 19, 2010 arrest of Samarth Agrawal, a former Société Générale SA trader for theft of trade secrets related to high frequency trading under the EEA. See United States v. Agrawal, No. 10-00417 (S.D.N.Y. May 13, 2010). Although Agrawal was arrested approximately nine months after Aleynikov, he was convicted by a jury and sentenced to only three years. United States v. Agrawal, No. 10-00417 (S.D.N.Y. Feb. 27, 2011). By comparison, Aleynikov was sentenced to approximately 8 years.
The February 2012 reversal of Aleynikov's conviction of trade secrets theft - especially the Second Circuit’s ruling that Aleynikov was wrongly charged with espionage, since the code was not a product designed for interstate or foreign commerce - called into question the government's ability to prosecute theft of internal trading systems or other internal financial instruments under the Economic Espionage Act.

References: § 1832
 § 2314
 v. 
 v. 
 § 1832
 § 1832
 § 1831
 § 1832
 § 1832
 § 2314
 § 1030
 v. 
 § 1832
 § 1831
 § 1831
 § 1832
 v. 
 v.