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Ex-Goldman Sachs Employee Sentenced to 97 Months for Trade Secret Theft

Experts say criminal trade secret theft cases are increasing.

The theft of major trade secrets is not an uncommon occurrence, but rarely does it play out in such a dramatically public fashion as in the case of Sergey Aleynikov. In March, the former Goldman Sachs computer programmer was sentenced to more than eight years in prison for stealing the firm’s proprietary trading platform and attempting to shop it to a new employer.

Aleynikov left Goldman Sachs in June 2009 for a new job at a Chicago trading startup called Teza Technologies. On the last day of his employment he encrypted the software—which the company had purchased for $500 million in 1999—and sent it to a server in Germany, then deleted the traces of his activity. Goldman Sachs, however, suspected a security breach and called the feds. Aleynikov was arrested at Newark Airport on July 3, 2009, by federal agents after bringing a laptop and storage device containing the source code to a meeting at Teza’s offices.

At the sentencing, U.S. District Court Judge Denise L. Cote said Aleynikov’s “conduct deserves a significant sentence because the scope of his theft was audacious—motivated solely by greed, and it was characterized by supreme disloyalty to his employer.”

The case is notable not only because of the brazen nature of the theft and length of the prison sentence, but also because it may signal a new hard line companies are taking in trade secret cases.

“If I were in-house counsel, I would emphasize the fact that these prosecutions are happening more frequently to the employees,” says Robyn Crowther, a litigator at Caldwell Leslie. “Especially the employees who have contact with sensitive information. The biggest value is in the deterrent effect.”

Criminal Cases Increase

Most trade secret theft cases never see the light of day. Companies generally don’t like to advertise the fact they’ve been victimized—it damages their reputation and can even spread the lost secret.

“There can be competitive disadvantages in disclosing to the government the extent of someone’s trade secret theft,” says Michael Geibelson, a partner at Robins, Kaplan, Miller & Ciresi. “It creates potential problems for you in dealing with customers that a competitor might be able to take advantage of, so you have to decide whether to open your doors with great care.”

Sometimes the decision to criminally prosecute is entirely out of a company’s hands. The government vigorously pursues any trade secret theft that compromises national security. Other times the crime is simply too big to ignore or to resolve discreetly.

“It seems that companies are going the criminal prosecution route more and more frequently,” says Crowther. “I’ve noticed an uptick in the past six to eight months. It used to be if these claims came up at all they came up in a civil suit that was by the company against the individual, not as part of a criminal investigation.”

There are some advantages to reporting trade secret theft to the feds. For one thing, the Uniform Trade Secrets Act is broader than the state laws used to bring civil cases. Criminal prosecutions can move much faster than civil litigation—a big help in containing or recovering the lost secret. Moreover, most individuals don’t have enough money to make civil cases practical for companies.

Most civil litigation threats amount to saber-rattling when a key employee jumps to a competitor company—a way of letting the former employee and the new company know that the trade secret holder is ready to file a misappropriation claim if something smells fishy. A criminal case, however, can really get employees’ attention.

“Some people might think, ‘They’re not really going to come after me in court—I don’t have any money, it’s not going to be worth it,’” Crowther says. “But the idea that they might go to jail—the defendant in Goldman got 97 months—that’s a big deal.”

 

Tech Factor

Another surprising aspect of the Goldman Sachs case is that it happened at all.

“I’m a little surprised to see that this guy got as far as he did within Goldman Sachs. I would think they would have a much more robust security system,” says Terry Church, an IP partner at Morgan Miller Blair. “It’s pretty interesting that he was able to download and just walk out the door with some of this stuff. Companies are more and more sensitive to protecting trade secrets these days.”

According to evidence presented at the trial, Goldman Sachs took significant measures to safeguard its programs and had all employees sign a confidentiality agreement. Aleynikov, however, had technology on his side.

“The Internet certainly has made the transfer of information substantially easier,” Geibelson says. “There are all kinds of technologies that can be used to wipe computer systems, to prevent detection. And the use of those kinds of programs has made it more and more difficult for companies to police their technology.”

It’s also hard to detect a tech-savvy employee hellbent on committing a crime. These cases, however, probably account for just a small percentage of trade secret losses. Most companies are victimized by their own sloppiness.

“There are probably many, many more misappropriations than come to light,” Geibelson says. “For example, a former employee that steals a list of customers and then uses that list when at a new employer—that’s very difficult to detect, particularly in a large company. At the lower end of the scale, it is likely not prosecuted criminally, and in many cases, not even pursued civilly, but it’s damaging nonetheless.”

Loose Lips

A high-profile conviction like Aleynikov’s  highlights the need for better security and ongoing employee training.

“The most important thing that you can do as an in-house lawyer is make sure your electronic communications policy is up-to-date and enforced,” Geibelson says. “You have to regularly run checks to see what kind of information is going in and out of the company, and the way that information is moving.”

Sales and technology employees require constant training to reinforce just how easy it is to lose control of a trade secret and drive home the potential long-term consequences for the company and the employee alike.

“You’re reading a computer monitor on an airplane. The guy behind you sees the screen. Have you lost the trade secret? You’re talking with somebody in an elevator or a restaurant and are overheard. You could well lose the trade secret,” Church says. “It’s very important for in-house counsel to remind the employees of these things on a regular basis, through classes, through announcements, through e-mails, whatever.”

Contributing Author

Steven Andersen

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