The sad story of the best Russian programmer VS Goldman Sachs

On the night 3 July 2009 Aleinikov was detained after a flight from Chicago to Newark. He left the plane, he noticed three men in black suits. They introduced themselves as FBI agents and, without giving the reason for the arrest, handcuffed him.

The programmer was at a loss and did not understand, what crime could he commit. Before that, he had, I guess, best period in life: the third child was recently born, he got an interesting job at a hedge fund, who paid him a million dollars a year, his family moved to a new big house. Twenty years ago, he came to America from Russia with no money and poor English and achieved the American dream..

When he was detained, he did not resist. The first guess was, that he was confused with another Sergei Aleinikov. Then it occurred to him, that his new employer, famous HFT trader Misha Malyshev, did something illegal. But he was wrong. At Newark airport he was told, that he stole the computer code, owned by Goldman Sachs (more GS).

The inexperienced FBI agent Michael McSwain, who met him before, during 12 years was a currency trader on CME. He ended his Wall Street career in the same 2007 year, when Sergey started his. McSwain put Aleinikov in a black car and took him to the FBI building in Lower Manhattan. There Michael took him to a small interrogation room., handcuffed to a wall pipe and read him the rights.

Then he explained the version of the investigation: in April 2009 Sergey agreed to a new job at the HFT-company Teza Technologies, but before that, for six weeks, he transferred cases to Goldman. During this period, he sent himself through the Subversion repository with a server in Germany 32 megabytes of source code. Website, which the Russian programmer used, as well as his finding seemed very suspicious to McSwain. Sergey had no idea, where is the server of this repository located. He just found it through a search in google, since it was a popular service, used by developers all over the world to store code.

Besides, the agent considered it very important, that Aleinikov used the site, unblockable by Goldman Sachs. Sergey tried to explain to him, that the company closed only porn sites and social networks to programmers. FBI agent hotel, for the accused to admit, that he erased his bash history (commands, which he entered through the keyboard into the GS). Sergey tried to explain, why did he do it, but McSwain was not very interested. "That, how he did it, seemed disgusting to me ", - the FBI agent later reported.

Everything, what did the agent say to Sergey, in fact it was true, but he didn't understand, what is the fault. "I thought, that this is some kind of madness ", He says.. “The FBI officers listed computer terms like this, that they didn't make any sense. They didn't know anything about HFT and the source code. ". McSwane was just repeating memorized phrases, which he heard from others, Not understanding, what are we talking about?. "There is a game" spoiled phone "in Russia; I think, he was playing it at that moment ", - Sergey recalls.

On the night of Sergei's arrest, he did not immediately call his lawyer, and dialed his wife's number and told her, what happened. Besides, he asked his spouse to hand over his computers to the FBI agents, although they did not have a search warrant, likewise, as well as warrants for his arrest.

He tried to politely ask the FBI: "How can you find out, what was stolen, if you have no idea, what is this?»Sergey thought, what, if the agent understood, how computers and HFT work, everyone would clear up. “I wanted to prove to him, that there is nothing interesting there ", - says Sergey. But the agent did not want to understand him at all.. He just kept on telling Aleinikov: " Everything, what do you say, will be used in court against you ". Sergey thought, that the FBI's job was to put him, quickly gaining recognition.

The main obstacle on this path was, what the FBI didn't understand, what he must confess. “In the written statement, they made obvious mistakes in computer terms.. And I tried to fix them ", - Sergey recalls. However, in 1:43 morning, after five hours of interrogation, McSwain sent an e-mail to the attorney's office: "Gosha! He signed a confession ". Aleinikov signed a confession, having previously crossed out the erroneous terms in the accusation. Two minutes later, the agent sent Sergei to jail. The prosecutor said, that he cannot be released on bail, as he is a danger to society and can run away from the country. Besides, he owns computer code, which in the wrong hands will allow "manipulating the market in an unfair way". Most likely, the prosecutor considered, that Goldman Sachs used it, to manipulate markets in a fairer way.

Later Aleinikov refused to speak with journalists and testify in court.. His speech and appearance, resembling a Russian spy, little suited for successful self-defense, he spoke great with other experts, but not with a regular audience, so his lawyer Kevin Marino advised him to remain silent. Sergey and was silent, even after being sentenced to eight years without parole.

Life in the USSR 

Sergei Aleinikov did not want to immigrate to America, much less work on Wall Street. He left Russia for 1991 year, but more with sadness, than with hope. "When I was 19, I had no idea, how can you leave the country. I was a patriot and even cried, when Brezhnev died. I also always hated English and considered myself incapable of learning languages. ", - Sergey recalls.

The main problem in the USSR was, that he was not allowed to learn programming, and he wanted. The reason was his nationality, the passport was, that he is a Jew, therefore it was very difficult for him to enter the university. Sergey was able to touch the computer in 1986 year, when he was 16 years. His first program was schedule sinusoids. When the computer ran the code, the guy was amazed and understood, what is his calling. He was involved in programming not only intellectually, but also emotionally. "Writing a program, like having a baby. This is creativity. Albeit technical, but this is a work of art. You get satisfaction from this ", He says..

Sergey wanted to apply his knowledge of mathematics and computer science, but the current system did not give him this. “I had to come to terms with the thought, that the USSR is not the best place for me ", - says Mr. Aleinikov.

He flew to New York in 1991 year, after the collapse of the Soviet Union. His first refuge was a room on 92nd Street., where he was sheltered by the YMCA. He was shocked in the new city by the many different people on the streets and a fantastic selection of groceries in stores.. He photographed the sausage lines and sent the photo to his mother in Moscow.. "I've never seen so many sausages.", He says.. Truth, later he chose vegetarianism.

Aleinikov came to America without money and real ideas, how to get them. He tried to get a job. “It was pretty nervous. I didn't speak English normally, and a resume was an alien concept to me, "he says.. In the first interview, he was asked to tell about himself. "For the Soviet mentality, this question meant to name the place of birth and relatives.", - he explains. Sergey was only able to tell about his family and nothing else.. But he had good programming skills., and he soon found a job in the office of a medical center in New Jersey for $8,75 per hour. He later landed a job at the Rutgers Department of Computer Science., where he was given a scholarship, so he can get a master's degree. Then he worked for Internet startups for several years., while in 1998 a year did not receive an offer from New Jersey telecom giant IDT. Over the next decade, Aleinikov developed systems and wrote code to route millions of telephone connections., helped to reduce costs and increase speed. When he came to the company, it had 500 employees, and to 2006 year - already 5 thousand, and he was her IT star. That year, a recruiting representative called him and said, that his specific programming skills are interested in Wall Street.

$270 thousand. for the eaten fly 

Sergey was uncommunicative. Although he had a circle of acquaintances from Russia, but he was most interested in working with code. So before the recruiter told him about Wall Street, Sergey didn't know much about this financial street. He was sent a bunch of books about finance and the software used in this area.. He was also told that, that he can earn a lot more $220 thousand. in year, which he received at the time. Sergei started to read a couple of books, but then I decided, that it is not for him. He worked for the good of the telecom sector and did not need a lot of income. A year later, he received a call again from a recruiting agency.. Sergei's wife, cute russian immigrant Elina, was carrying a third child, and they needed to move out of a two-room house. Moreover, in 2007 year IDT was in a difficult financial position, therefore Aleinikov agreed.

Goldman Sachs conducted a series of telephone interviews with him, and then invited for a full day of live interview. Sergey considered it burdensome and strange. "I've never seen, so that people put so much energy into evaluating others ", He says.. A dozen Goldman Sachs employees tested it with computer puzzles one by one., mathematical problems and even physical problems. After that, it became clear to the Goldman staff, what does he know more, than they ask him. Then he was invited to come the next day.. He went home thinking, that he doesn't want to work for Goldman Sachs. “But the next morning, the spirit of competition awoke in me.. I got it, that this is a competition and we must pass it ", He says..

Another round of interviews ended with a meeting with one of the Russian HFT traders - Alexander Davydovich. He was the managing director, and he had two questions for mathematical ability. The first question sounded like this: "Is it 3599 prime number?"Sergei thought, what 3599 very close to 3600. He wrote the following equation: 3599 = 3600 – 1 = 60² – 1² = (60 – 1) (60 + 1) = 59 ´ 61. I.e 3599 not a prime number. Aleinikov found the answer in about two minutes.

The second question turned out to be more difficult. Alexander invited Sergei to imagine a rectangular room and reported all three of its dimensions. "He said, that there is a spider on the floor of the room, gave his coordinates. There was still a fly on the ceiling, her coordinates were also known. Davydovich asked to calculate the shortest path of a spider to a fly ", — says Aleinikov. The shortest path to objects is a straight line, but the spider cannot fly, he can only crawl on the surface. And then Sergey understood, that you need to turn a three-dimensional room into a one-dimensional surface, then calculate the distance according to the Pythagorean theorem.

It also took him a couple of minutes to solve this problem.. After the "caught fly" Davydovich offered him a job with a salary $270 thousand. in year.

Holding an elephant 

Aleinikov amazed, that he fits perfectly into the company: half of Goldman Sachs programmers were Russian. Russians had a reputation for being the best on Wall Street, and Sergey knew why: they had to learn to program without being around the computer all the time. “The working time on a computer for programmers from the USSR was measured in minutes. When you write a program, you are given a tiny time slot for, to make it work. Consequently, we wrote the code like this, to minimize debugging time. I had to think a lot, how best to implement the algorithm, before writing it on paper. Now the availability of computer time allows you to write and erase an idea ten times, ”Aleinikov says..

He joined GS at an interesting time. To the middle 2007 of the year, the investment bank's bond trading department was one of the culprits of the global financial crisis, helping the Greek government mask the book of debts, simultaneously issuing sub-prime mortgage papers and playing against them.

At the same time, exchanges and various dark pool, on which the same assets were traded, what made it possible to arbitrate. Most of the new trade was generated by non-old-fashioned investors, and extremely fast robots from HFT firms, such as Getco and Citadel, as well as HFT divisions of large banks, such as Goldman Sachs. According to experts, algorithms suck about $20 billion. The exact figure is unknown, as high-frequency firms are not required to disclose their earnings. But when Citadel offered high-frequency trader Misha Malyshev $75 million, but he left anyway, it says a lot.

The combination of new legislation and technology manifests itself in the war of robots. The robots are faster, the more chances to earn. IN 2008 year Goldman Sachs decided to make billions from them. Prior to this, the high-frequency division of the GS was in operation only $300 million. Against the background of, that a similar Citadel division received $1,2 billion, GS was not even in the Top 10, what saddened the leadership.

Goldman Sachs HFT robots were slow. Aleinikov had to increase the speed of systems. According to Sergei, the GS system was a mixture of code from different programmers, and writing it in IDT was much better organized. GS bought the core of its system nine years ago from Hull Trading. A clumsy system was hung with a huge amount of old software and nine years of various fixes. According to Sergey's calculations, she had more 60 million lines of code. Initially, he had to monitor the health of this system..

One small example of how it works: in New Jersey, an investment bank bought a building opposite Nasdaq, what was supposed to ensure the speed of trade, but it did not help. Aleinikov was instructed to increase the transmission speed. When he came, in a second there and back passed 40 thousand. Messages. When he tested the system, then the signal from GS to Nasdaq passed for 5 Milliseconds. For other HFTs, the signal goes from Chicago to New York during this time period.. Certainly, such speed did not suit anyone, and Sergey began to look for reasons. Equipment has been checked, since good HFT companies change it every couple of months. But the reason turned out to be clumsy GS software.. The high frequency trading platform has been designed in typical Goldman style: every signal sent had to go through the parent server in Manhattan, before heading back to the market. “Actually, the reason for the delay was not the distance., and in that, that there were layers of corporate switching equipment in the signal path ", - says Sergey.

After several months of work Aleinikov came to the conclusion, what's the best, what can be done, Is to completely demolish the old high-frequency platform and build a new one. But the bosses did not want to change the equipment, he needed profit here and now. “They were not interested in anything long-term., they wanted everything at once, Aleinikov says. - But the constant correction of the existing system led to the fact that, that she looked like an elephant, which is difficult to keep ". In fact, for two years in GS, he "supported the elephant".

Dishonest Goldman 

Aleinikov believed Trading a gambling game for gambling addicts and preferred the calm world of programming. He was not friends with the Goldman traders.. But he knew, that they are obsessed with speed, and created for them something, what they wanted. “It was not completely clear to me, will the advantage be on our side, if we decrease the speed by half a millisecond ", He says..

He changed how Goldman's algorithms work according to IDT principles.: he decentralized the system. Previously, signals from various exchanges were sent to a single center, now inside each exchange there was a mini-center. But most of the time was spent updating the old code. To do this, he and other GS programmers resorted to open source., accessible to everyone. These instruments and components were not intended directly for the financial markets, but could be adapted to upgrade GS systems. Soon Sergey discovered, that Goldman Sachs took over a huge amount of free software on the web, but didn't return it after changing it, even when the modification was minor and was not used for financial purposes. “I took the freeware components, packed them and made it possible for two computers to work as one. If one computer has problems, the second one intercepts tasks and starts working for him ", — says Aleinikov. Sergei approached his boss Adam Schlesinger and asked, can he put his work back into open source. "He said, that it is now the property of Goldman Sachs, - recalls Aleinikov. - He was very tense, when I mentioned it ". Aleinikov could not understand in any way, how can you behave so selfishly: use the code of others, and give nothing in return.

Competition was cultivated at GS: everyone tried to show, how great is his personal contribution, since the teams did not receive the bonus. This approach was not conducive to good programming, because it is a team task. Connections between employees were minimal - in contrast to the telecom sector, where the interaction between people took place and the programmers were more relaxed. В Goldman, according to Aleinikov, it was like this: “Something broke there, and we are losing money. Fix it now ". Programmers assigned to fix the problem did not speak to each other. “When two people wanted to talk, they went to an empty office ", - says Sergey.

Aleinikov did not know about his reputation: he was known as the best programmer in Goldman Sachs. “There were only twenty people on Wall Street, who could do that, what can Sergey do. And he was one of the best, if not the best ", - says one of the headhunters.

At Goldman, programmers usually don't know their worth.. They are separated from traders and therefore do not see numbers., do not know the amounts, which are earned through their algorithms. This did not interest Sergey. He got an offer from UBS, promising to raise salaries to $400 thousand, but he didn't want to go to another firm on Wall Street. But in the beginning 2009 year he received an offer to create a trading platform for a hedge fund, created by 39-year-old Russian Misha Malyshev.

The prospect of creating a new platform, and not fixing the old one interested him. In addition, they were willing to pay him more than a million dollars a year., offered to open an office near his home in New Jersey. He agreed and told Goldman, what goes away. The executives asked him, what can they do, for him to stay. “They tried to discuss wages, - says the programmer. - I told them, that it's not about money. It was a chance to build a new system from scratch.. While at IDT I actually saw the results of my work, Goldman had this monstrous system. I had a feeling, that no one in the company knows, how does this system work as a whole ".

GS management asked him to train replacement people for six weeks.. Four times in those six weeks, he posted the source code of the system., with which he worked. Later he will be accused of sending 32 megabyte of code. In these files was as open source, and modified and already owned by Goldman Sachs. As he later tried to explain to FBI agents, he hoped to separate one from the other, to remember, how he changed open source. He sent these files the same way, as I did before every week, starting from the first month of work. "Nobody ever said a word to me about it.", - explains the programmer.

He just opened a browser and copied the code into the free Subversion repository, then he did that, what have always done: deleted my bash history (system commands. Bash is a shell on many Linux distributions, including Fedora, Ubuntu, Redhat). If he wanted to go unnoticed, then I could come up with, something more dodgy. "I knew, that they might be unhappy. It seemed to me, that I am a little overspeed in a car ", He says..

The sleeping jury and the weird professor 

Aleinikov's trial lasted ten days, and there were few professionals on it. The world of high-frequency trading is small, so it is unlikely that there will be those, who is interested in roaming the courts. Those present did not understand HFT trading at all. Illinois Institute of Technology professor Benjamin Van Vliet was present at the trial., who cannot be called a professional in high frequency trading. He was misinformed about this market and named Goldman Sachs - New York Yankees in the HFT, although this is not entirely true.

The jury consisted mostly of high school graduates, no programming experience. Misha Malyshev, who was summoned to court as a witness, quoth, that the Goldman Sachs code was useless on the system, which Sergey was supposed to build. Misha insisted, that he never wanted to import code, because he wanted to build his Teza system from scratch. “Even if I were offered the entire Goldman high frequency trading platform, I would not be interested ", - said Misha, but when he looked at the jury, then half of them, Seemed, Slept. “If I were a jury, not a programmer, it would be very difficult for me to understand, What I've done", Aleinikov says.

Goldman Sachs' role in court was, to make it even more difficult to understand. Witnesses from the investment bank behaved like this, as if they wanted to be prosecuted, were not independent. "Not that they were lying, - says Sergey. - But they said things, which they didn't understand. When Adam Schlesinger was asked about the code, he just said, that it is all the property of Goldman. I wouldn't say, that he lied, but he was misunderstood ".

There were no professionals at the trial, understanding something in the HFT business, did not resort to their help and the FBI. “They would bring my computer to the courtroom, would pull the hard drive out of it and show it to the jury as evidence!"- says Mr. Aleinikov.

HFT court 

After a real meeting, a kind of second HFT court was assembled in a separate room of the restaurant.. Well-known journalist Michael Lewis invited half a dozen people to sit on the jury, familiar with Goldman Sachs, with high frequency trading and programming.

History, that Aleinikov only needed publicly available code, which the FBI deemed unconvincing, seemed logical to the jury. Since Goldman did not allow him to post an improved version of open source to the network, then the only way to get it is to copy the investment bank code. That, that partially the code got there, owned by GS, no one surprised. This code was written for their platform only, therefore it would not be useful to anyone outside. Two small pieces of code, which he used in the new Teza platform, had public licenses. "It would really be easier for him to write a new platform from scratch.", - said one juror. All agreed on the assessment, that Goldman's code for creating a new system would hardly be useful to him.

But Aleinikov surprised the HFT jury with his answers. They were very surprised that, that he sent codes weekly from GS servers and no one in the company told him anything. «В Citadel, if you insert a USB flash drive into your work computer, within five minutes someone will already be standing nearby and talking: guy, Gosh darn, what are you doing?», - said one of the participants in the meeting. They were also surprised that, how little he copied: eight megabytes per platform, which consisted of one gigabyte of code. But most of all the jury was surprised that, that he had access to all strategies, but did not take any, that is, he did not steal robots. It didn't seem interesting to him.

The real secret is not the same, why did Sergey send the code, and that, why Goldman Sachs and the FBI wanted to jail him so hard. They trained employees to testify., for the programmer to get a longer term, and the FBI did not try to figure out the issue.

Maybe, Goldman Sachs managers feared for their own bonuses. Imprisoning a former programmer for stealing "important-important" secrets, they showed the management, that they are doing "important-important" things. Besides, they can qualify for additional annual bonuses for "code leak prevention". At the meeting, everyone tried to understand, why is Sergey so calm. Seems, he was happy with what was happening, and it was impossible to imagine, that he lost his home, Work, wife and savings. One of the people at the table stopped the conversation about machine code and asked: Why are you not upset?"Sergei just smiled back.. "Not, really, - said another. - How do you stay so calm? I would have lost my mind by now ". He smiled again and said: “To some extent I'm glad, what happened to me. Think, that it improved my understanding of life ".

Arrest again 

After the accusations of GS and the FBI, Aleinikov withdrew into himself and thought about his place in this world. “When I was arrested, I could not sleep, He says.. - I saw articles in the newspaper and trembled with fear of losing my reputation. Now I just smile and don't panic ". By then,, when Sergei was sent to prison, his wife left him, taking his house and money from him, and no one supported him. In prison, in which Sergey spent the first four months, contained the most violent criminals. He was not afraid to be alone with them., and for the first time in his life he started talking more.

After a year in prison, Sergei Aleinikov's appeal to the Second Circuit Court of Appeal was heard. His lawyer Kevin Marino worked for him for free, since Sergey was bankrupt. Marino's argument was, what laws, on the basis of which he is accused, do not actually apply to his case. On midday 17 February 2012 Sergei was released.

A few months later, Marino noticed, that Sergei did not return his passport, and called him. Was, what his, stayed with friends in New Jersey, arrested again, put in jail and are again preparing charges against him. Now he faces four years in prison. A few days later, Manhattan District Attorney Cyrus Vance Jr. said, that New York State accuses Sergei Aleinikov of “stealing and duplicating complex computer code, owned by Goldman Sachs ". The press release from the prosecutor's office said, that the code is so confidential, that in the market it is called "the company's secret sauce".

Marino remembered, where did the combination "secret sauce" come from?. This phrase was used in his testimony by Sergei, when teased accusers, calling the Goldman Sachs code a secret sauce. Now Aleinikov has been released on bail, and his work continues. Now he's suing Goldman, to recover legal costs. After the conclusion, According to him, he rethought life and became happier than ever. For the first time in his life, he began to communicate with people, whereas before he was only interested in computer code. Sergey is sure, that prison is good for every man: she helps to understand life, not depend on money, learn to appreciate simple things, like sunshine and morning breeze.

Goldman Sachs Answer: “The company has spent millions of dollars and tens of thousands of hours, developing source code and business technology. The firm is trying to protect this valuable technology. The firm restricts access to its own technology to those employees, whose responsibilities include maintaining technology. When he left the company, then encrypted and sent to a server in Germany 500 thousand. Rows. Despite, what the file contained and open source, a significant part was occupied by the code, owned by Goldman Sachs.