Sergey Aleynikov, former Goldman Sachs Group Inc. programmer, leaves Federal court in New York, U.S., on Thursday, Dec. 9, 2010. Photographer: Jin Lee/Bloomberg
Sergey Aleynikov, former Goldman Sachs Group Inc. programmer, leaves Federal court in New York, U.S., on Thursday, Dec. 9, 2010. Photographer: Jin Lee/Bloomberg

Goldman, Ex-Programmer Fight Over Fees, Title in Appeals Court

By Jef Feeley, Bloomberg News

A former Goldman Sachs Group Inc. programmer, cleared of charges he stole the investment firm’s computer-trading codes, can’t prove he’s an executive entitled to have fees covered in legal disputes, one of the bank’s lawyers argued Wednesday.

Sergey Aleynikov may have had a vice president’s title, but he didn’t have the kind of managerial authority that made him one of the investment bank’s corporate officers, Christopher Duffy, a lawyer for Goldman Sachs, told the Delaware Supreme Court.

Aleynikov “failed to prove that someone who has had the bare title of vice president qualified” as a corporate officer entitled to have his feeds paid, Duffy said.

The former programmer is asking Delaware’s highest court to overturn a finding that he wasn’t automatically entitled to legal-fee coverage when he was arrested in 2009 for stealing the bank’s high-frequency trading codes as he was leaving for another job.

A loss for New York-based Goldman Sachs may force the bank to extend corporate-officer status to more of its 13,000 vice presidents. The company contends its bylaws allow managers to
pick and choose who deserves perks such as legal-fee reimbursement.

‘Flash Boys’

The Russian immigrant, whose saga helped inspire Michael Lewis’s book “Flash Boys,” would be on the hook for more than $7 million in legal fees he racked up fighting the code-theft charges if the court doesn’t rule his way.

“There is a widespread understanding” that vice presidents are corporate officers, Kevin Marino, an attorney for Aleynikov told the court on Wednesday.

Aleynikov was arrested in 2009 after leaving to join Teza Technologies LLC. Prosecutors alleged that Aleynikov uploaded hundreds of thousands of lines of so-called open source code from the firm’s high-frequency trading system on his last day of work. Aleynikov’s lawyers denied he pilfered proprietary information while transferring the code to a personal e-mail account.

A federal theft conviction in December 2010 was overturned in 2012. Three years later, a judge threw out related state- court charges that the programmer made off with the bank’s codes. New York prosecutors are appealing that decision.

After being cleared of the charges, Aleynikov sued Goldman Sachs in federal court in New Jersey in 2012 seeking to force the bank to cover his defense lawyers’ fees. The following year, a judge there ordered Goldman Sachs to pay $2.3 million for Aleynikov’s legal bills.

Bank’s Bylaws

A federal appeals court in Philadelphia overturned that decision in 2014, ruling that ambiguity in Goldman Sachs’s bylaws must be decided under the law in Delaware, where the bank
is incorporated. Goldman Sachs countersued in New Jersey, claiming its former employee breached his duty by “misappropriating” the codes.

In February 2015, Aleynikov sued Goldman Sachs in Delaware Chancery Court to recoup fees tied to Goldman’s counterclaim. Chancery Judge Travis Laster rejected Aleynikov’s claims in July 2016 because he couldn’t prove all junior executives qualified as officers under the bank’s bylaws.

The programmer’s lawyers argued in their appeal that Laster erred in failing to adopt the “reasonable” definition of a corporate officer in the general business world, which includes all vice presidents.

“Aleynikov has always maintained the term ‘officer’ and the title ‘vice president’ mean the same thing in the investment-banking industry as elsewhere,” the lawyers said in court documents filed before Wednesday’s hearing.

Goldman Sachs’ attorneys countered a VP’s title has never automatically bestowed corporate-officer status in the investment-banking industry and Aleynikov’s job didn’t have a supervisory or policy making component. “The plain meaning of officer turns on management functions and authority, not title,” the bank’s lawyers said.

The Delaware case is Sergey Aleynikov v. Goldman Sachs Group Inc., No. 366, 2016, Delaware Supreme Court (Dover). The New Jersey case is Aleynikov v. Goldman Sachs Group, 15-cv-2057, U.S. District Court for the District of New Jersey (Newark).

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