Former Goldman Programmer's Conviction Overturned

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Former Goldman Programmer's Conviction Overturned

Posted by Soulskill on Friday February 17, 2012 @06:00AM from the convicted-and-acquitted-millions-of-times-per-minute dept.

i_want_you_to_throw_ writes "The legal woes will soon be over for Sergey Aleynikov, a former Goldman Sachs Group computer programmer who had been convicted of stealing part of the Wall Street bank's high-frequency trading code. A federal appeals court overturned his conviction and recommended acquittal. We previously discussed this story when he was sentenced to 97 months in prison. It will be interesting to see their reasoning (an opinion is to be released) as well as what this may mean for other programmers developing high frequency trading code."

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Shouldn't be legal to use in the first place. by tragedy · 2012-02-17 06:05 · Score: 4, Insightful

High frequency trading code shouldn't be legal to use for trading in the first place. It doesn't provide anything useful ("liquidity" has no place in an investment system, it's only good for speculative investing, which is just gambling), and simply parasitically leaches from the market and destabilizes it. The people the programmer was working for are the ones who should be convicted.
1. Re:Shouldn't be legal to use in the first place. by maroberts · 2012-02-17 06:35 · Score: 5, Insightful
  
  If you want to finance your retirement or your childs education, you don't need to sell shares every 5 seconds, so liquidity means little in this regard. It would not be the end of the world having to wait a week or two for money for such purposes.
  
  --
  Donte Alistair Anderson Roberts - hi son!
  Karma: Chameleon
2. Re:Shouldn't be legal to use in the first place. by Tuan121 · 2012-02-17 08:01 · Score: 4, Insightful
  
  It really doesn't surprise me what gets modded "insightful" here these days.
  Liquidity has no place in an investment system you say? So you mean, if you have some shares of Apple and you want to sell them, you should have to try to shop around to sell them and pay a large transaction cost just to get rid of something that has a market value? And how is that market value determined if there are not people actively trading the product? You can say a widget is worth $100 million, but until someone actually buys it for that price it's just imaginary.
  And speculative investing is not good you say because it's gambling. Hmm, so what is buying shares of a new start-up company then, this would be investing, but not gambling?? I don't think you understand that both are in many ways the same thing. Investing IS gambling in every single way.
In essence by Anonymous Coward · 2012-02-17 06:13 · Score: 5, Interesting

He took a copy of the code of an internal tool, not something that they sell to customers. Would you really consider it evil to save a copy of your log viewer, for example? The law was intended to protect sold products.
1. Re:In essence by alen · 2012-02-17 06:24 · Score: 4, Insightful
  
  he didn't take a log, he took the algorith and source code that took years to develop and which was meant to be used only internally
  this is like a Moto engineer taking a new antenna or radio noise reduction algorithm and going to apple with it hoping to get paid $$$$$
2. Re:In essence by maroberts · 2012-02-17 06:28 · Score: 5, Insightful
  
  If you produce a product as part of work for hire and then steal that code and sell it on to a third party, it's still a form of theft.
  It was however, perfectly legitimate for him to walk out with the knowledge of how stuff worked in his head and sell his expertise; I'm surprised he didn't do so. Once you know how something is done, you have solved the hard part and can spout a new set of code out of your head with little difficulty. Often producing a product the second time means you can do things better and faster anyway.
  There's a lot of blurring between personal and work computers nowadays, which does mean you may have a copy of stuff you have developed on your home PC, and that can make things awkward. But if you do mean to sell something you've worked on to another party, you'd damn well better make sure that right is in your contract.
  
  --
  Donte Alistair Anderson Roberts - hi son!
  Karma: Chameleon
90% reduction by alexander_686 · 2012-02-17 06:14 · Score: 5, Insightful

Unless you count a 90% reduction in trading costs as “nothing”.
Back in the day Market Makers would take $.125 to $.25 for every share traded. And woe to you if you were trying to sell more than 10k because then you would really be scalped. And then you had to add broker commissions on top of that.
I would rather pay high frequency traders $.01 a share and have a deep liquid market then go back to the good old days
1. Re:90% reduction by Anonymous Coward · 2012-02-17 06:27 · Score: 5, Insightful
  
  Those fees are only a problem if you don't plan to hold on to your stock very long: after a few years or more of capital value change plus dividends, it's insignificant.
  What's that you say? You like to buy and sell on a timeframe of weeks? Well, that's speculation not investment, and we need less of that. I'm happy to have that anti-speculation incentive built-in.
2. Re:90% reduction by GlobalEcho · 2012-02-17 06:41 · Score: 5, Interesting
  
  For what it is worth, academic research indicates that HF trading significantly increases liquidity. The main people it hurt were the floor-based stockbrokers. There is a natural human tendency to detest the "middleman", who appears to generate nothing of value, in all economic endeavors. One notices it for market makes, car dealers store owners and so on. But middlemen actually do provide a valuable service to society. In Nature's Metropolis by William Cronon there is a fascinating study of the mutual resentment of the wood wholesalers, hardware store owners, and the public in the 1800s, even as everyone was getting much richer and healthier.
3. Re:90% reduction by Rockoon · 2012-02-17 06:53 · Score: 4, Informative
  
  The New York Times wrote [that] the joint report then noted "Automatic computerized traders on the stock market shut down as they detected the sharp rise in buying and selling." As computerized high frequency traders exited the stock market, the resulting lack of liquidity "...caused shares of some prominent companies like Procter & Gamble and Accenture to trade down as low as a penny or as high as $100,000." These extreme prices also resulted from "market internalizers," firms that usually trade with customer orders from their own inventory instead of sending those orders to exchanges, "routing 'most, if not all,' retail orders to the public markets -- a flood of unusual selling pressure that sucked up more dwindling liquidity."
  
  2010 Flash Crash
  
  --
  "His name was James Damore."
4. Re:90% reduction by mrops · 2012-02-17 07:06 · Score: 5, Informative
  
  That is the problem with the entire stock trading mentality. Stocks are viewed as commodity that makes the investor rich, no one views them as investing a company that will succeed with the investor's money.
5. Re:90% reduction by AuMatar · 2012-02-17 07:30 · Score: 5, Interesting
  
  Because you aren't. If you were investing in a company, you'd be giving them capital to use for purchasing/hiring/research. Unless you're buying in an IPO or secondary, you're not giving the company any money at all. So it's not investing, it's legalized gambling where you wager on companies, not invest in them
  
  --
  I still have more fans than freaks. WTF is wrong with you people?
6. Re:90% reduction by boorack · 2012-02-17 07:31 · Score: 4, Insightful
  
  You assume that they provide liquidity which is not true with HFT and that $.01 a share cheap which is also not the case for HFT traders.
  Regarding liquidity, HFT provides an illusion of liquidity. When a bunch of computers banging, say, 500 shares between themselves over and over again 500 times a day will generate 250000 volume but this does not mean that market is so deep. You see, there are only 500 shares in use. When some big, traditional (institutional?) investor fooled by this artificially high volume decides to sell 100000 shares, it will impact market much higher than if that 250000 (or even half of that) was a real volume. To make thing worse, computers trading these shares will propably detect and try to take of this incurring even more losses to investor (potential gains for HFT trader) and potentially cause some form of flash crash. In the end, traditional investors typically get much worse off with HFT than without HFT, even seeing [lack of] real volume.
  Regarding $0.01 - remember that this is $0.01 times billions. It results with hundreds of millions of dollars getting sucked off market by HFT operators instead of being directed into actual, productive investments (thing that stock markets are supposed to be created for). That this money is sucked off penny by penny does not matter. It's still real investments deprived of hundreds of millions of dollars every day by Goldman Sachs and its cronies.
  In my opinion HFT is a fraud, nothing more. The fact that it's (still) legal is just a sign how corrupt whole system is.
7. Re:90% reduction by Zak3056 · 2012-02-17 07:33 · Score: 4, Insightful
  
  That is the problem with the entire stock trading mentality. Stocks are viewed as commodity that makes the investor rich, no one views them as investing a company that will succeed with the investor's money.
  Given that so many companies don't pay dividends, I can't help but wonder what "investors" are actually investing in? I mean, I'll grant it's not true across the board, but pick any tech company, and if they're making money, it's for the sole purpose of sticking it in the bank. Apple has, what, $100B in the bank? To what end? It's not hard to see why we have this mentality, and why our market is all about finding a bigger idiot.
  FWIW, my money says that one day we're going to find that something like the Teamster's pension scandal has happened again.
  
  --
  What part of "shall not be infringed" is so hard to understand?
8. Re:90% reduction by maple_shaft · 2012-02-17 07:47 · Score: 5, Insightful
  
  But as was already said, this is speculative trading and NOT an investment. If you are a small time investor and are trying to engage in speculative trading then you are just asking to be bilked of your money. You don't overhear the chatter on the trading floor. You don't see breaking news happening before it goes public. The day traders and hedge funds will eat your lunch. You might as well be playing blackjack at the casino.
  If you are a small time investor you are much better off studying earnings reports and making long term investment choices in blue chip stocks that pay dividends than trying to play the big boy games.
9. Re:90% reduction by barc0001 · 2012-02-17 07:52 · Score: 4, Interesting
  
  Actually, it would be better to simply get rid of algo trading by adding a $0.001 "tax" to each share traded. That would affect "real" trades very little, but would completely obliterate the profitability of algorithmic extreme-transaction-volume trading. To be absolutely clear we are not talking about your ability to trade stocks yourself through something like E-Trade, we're talking about brokerage houses doing hundreds of thousands of transactions per day trying to carve additional profit for themselves. Have a look at this TED Talk on the matter that was posted to /. a while back for some further perspective.
  http://www.ted.com/talks/kevin_slavin_how_algorithms_shape_our_world.html
  The relevant bit starts at around 2:45.
10. Re:90% reduction by pclminion · 2012-02-17 08:55 · Score: 5, Interesting
  
  So if a company has a good long-term outlook and I buy in, and the stock does well for a period of time, then six months later the CEO dies in a car accident and is replaced by somebody who immediately starts running the company into the ground, I shouldn't be able to exit my position and take what little gains I can before they become losses? You want me to just hold on and get fucked because the situation changed dramatically? Am I supposed to read the future? It's one thing to speculate, it's another thing to be in for a long haul and decide (rationally!) to abort when things take a turn for the worse.
Prosecution flubbed it by GlobalEcho · 2012-02-17 06:32 · Score: 4, Interesting

If you read TFA looks you find that, in their eagerness to get the maximum news and sentence, the prosecution chose the wrong statute to charge him under. If they had just treated this like any other case of illegally copying an employer's code and not tried to get cute with the "interstate commerce" bit, they would have had a rock-solid conviction.
90% reduction? Who cares? Gamblers! by s-whs · 2012-02-17 06:43 · Score: 4, Insightful

Unless you count a 90% reduction in trading costs as âoenothingâ.

Back in the day Market Makers would take $.125 to $.25 for every share traded. And woe to you if you were trying to sell more than 10k because then you would really be scalped. And then you had to add broker commissions on top of that.

I would rather pay high frequency traders $.01 a share and have a deep liquid market then go back to the good old days

(- infinite, moronic)

Who gives a damn what percentage some trader wanted? For one it's all mostly automated so fees should be very low now, and for another, if you don't need to/want to buy/sell frequently then the small charges are a non issue. They are only an issue if you want to trade a lot because you want to gamble on changes in values of stock. So the original poster was right, high freqeuncy trading is valueless and should be disallowed. It's gambling, and not just simple gambling, but gambling that destabilizes economies.