In September 2009, when the FBI had arrested Sergey Aleynikov for allegedly stealing proprietary trading codes from Goldman Sachs, the financial powerhouse probably did not expect, as a purported victim, to pay him to defend against the criminal charges. However, last month a New Jersey federal judge held that Aleynikov, a programmer at a Goldman subsidiary for less than two years, could be considered an officer by virtue of his vice president title and that the company’s bylaws required it to advance his attorney fees. The ongoing dispute over the costs of Aleynikov’s defense against federal and state charges arising from his alleged theft demonstrates the importance of careful drafting of the advancement and indemnification provisions of corporate bylaws.
The central dispute regarding Aleynikov’s entitlement to advancement was whether he was an officer under Goldman’s bylaws. The majority of his programming work involved Goldman’s “high-frequency trading,” a growing investment strategy that uses algorithms to rapidly trade securities at low profit margins. After two years at Goldman, Aleynikov accepted a position with another high-frequency trader, Teza Technologies LLC. On his last day, Aleynikov allegedly stole approximately 500,000 lines of source code from Goldman’s system and and brought it to a meeting with Teza executives. Aleynikov was convicted on federal charges in December 2010 and sentenced to 97 months in prison. However, he was released from custody when the U.S. Court of Appeals for the Second Circuit overturned his conviction in a ruling that substantially limited the application of the National Stolen Property Act and the Economic Espionage Act. Aleynikov is presently facing state criminal charges in New York for unlawful use of secret scientific material and duplication of computer-related material.
