Sergey Aleynikov, the former Goldman Sachs computer programmer accused of stealing computer source code powering the bank’s high-frequency trading platform, has been convicted by a New York jury of a single count of Unlawful Use of Secret Scientific Material.  The jury hung on a second Unlawful Use count and acquitted Aleynikov on a third count of Unlawful Duplication of Computer-Related Material.

This is not the first time Aleynikov has been criminally convicted for this same conduct:  In 2010, Aleynikov was charged, tried and convicted in federal court of violating the federal National Stolen Property Act (“NSPA”) (18 USC § 2314) and Economic Espionage Act (“EEA”) (18 USC § 1832).  However, in 2012, the Second Circuit reversed both convictions.

In doing so, the Second Circuit first concluded that the NSPA – which makes it a crime to “transport[ ], transmit[ ], or transfer[ ] in interstate or foreign commerce any goods, wares, [or] merchandise . . . of the value of $5,000 or more, knowing the same to have been stolen, converted or taken by fraud” – did not extend to the theft of “purely intangible property,” such as source code.   18 USC § 2314 (emphasis added).  The Court explained that “[b]ecause 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 NSPA.”  See United States v. Aleynikov, 676 F.3d 71, 78-79 (2d Cir. 2012) (quoting Dowling v. United States, 473 U.S. 207, 216-17 (1985)).  Interestingly, adherence to the text of this aged statute leads to the bizarre conclusion that theft of a CD or flashdrive containing the source code would be a violation, while theft of the code itself would not – suggesting the statute is ripe for amendment.

Second, the Circuit Court concluded that Aleynikov had not violated the EEA, which prohibits unauthorized uploading, downloading, transmission and conveyance of trade secrets “related to or included in a product that is produced for or placed in interstate commerce.”  18 USC § 1832.  Because Goldman used its proprietary code internally to optimize its high-frequency trading, but never intended or offered the software for sale or license to anyone outside of the company, the Court concluded that Aleynikov’s conduct fell outside the statute.  Congress has subsequently amended the EEA to close this loophole, making clear that its prohibitions encompass the theft of trade secrets “related to a product or service used in or intended for use” in interstate commerce.  18 USC § 1832 (2012) (amended by Pub. L. 112-236).

Although the Manhattan District Attorney’s office has now obtained a new conviction of Aleynikov, its victory remains an uncertain one.  Aleynikov has reportedly filed a pre-verdict motion to dismiss the New York charges, arguing once again that his conduct did not violate the laws under which he was charged.

New York Penal Law § 165.07, governing the offense of his conviction, provides that

[a] person is guilty of unlawful use of secret scientific material when, with intent to appropriate to himself or another the use of secret scientific material, and having no right to do so and no reasonable ground to believe that he has such right, he makes a tangible reproduction or representation of such secret scientific material by means of writing, photographing, drawing, mechanically or electronically reproducing or recording such secret scientific material.

Although Aleynikov admits copying Goldman’s code to the cloud and then to a computer and flash drive, he disputes that the copies were “tangible” reproductions or representations within the statute, since they could not be touched, did not exist in physical form, and were ruled “intangible” by the Second Circuit and the New York court (when discussing the federal charges).  Second, Aleynikov argues that he lacked the required intent to “appropriate” the source code – that is, to acquire the major portion of the source code’s value or benefit – since there was no evidence that he intended to sell or incorporate the source code into his new company’s high-frequency trading platform, or that such code could in fact be successfully deployed at another firm.  Third, he argues that there was no evidence that he lacked the right to copy Goldman’s code in the first place.  The Government disputes each point, asserting that the evidence adduced at trial proved that Aleynikov had the requisite intent and lacked the right to appropriate the source code, and that interpretations of whether source code is “tangible” under the distinct federal NSPA have no bearing under the New York Penal Law, which by its own text plainly extends to electronic reproductions and recordings.  Moreover, the Government argues, another New York Supreme Court judge has already concluded that Aleynikov “ma[de] a tangible electronic reproduction  of confidential and proprietary materials related to Goldman’s source code.”  See People v. Aleynikov, No. 4447/12 (Sup. Ct. of N.Y.  Apr. 5, 2013) (order), at *13, 18 (emphasis added).

The presiding judge, Hon. Daniel P. Conviser, has said he will resolve the motion in five or six weeks, and has scheduled sentencing for June 23, 2015.