The Full Aleynikov Transcript

Must read. An interesting section from Facciponte:

My understanding is that Goldman Sachs realized that this was a problem based upon their review of those logs just a few days ago. The government was not contacted until Wednesday about this matter.

I think what Ms. Shroff is confusing is Goldman’s civil remedies, to the extent that it has any, and this criminal case. Maybe Goldman can go out and get whatever the German equivalent is of a TRO. But this is, in the government’s view, a crime that we have shown probable cause for, and therefore it is possible that the defendant may compound his crime and pose a danger to the community. And the bail statute allows the court to detain him if he is a danger.

Shoff takes offense to this and makes the point that Goldman likely knew about the situation for over a month, delaying, for unknown reason, until striking when it did. Some derivative conspiracy theories could be derived from this. But in a nutshell, the math, according to the sworn testimony by the U.S. Attorney, is that it took less than 48 hours between Goldman realizing it had been compromised (on Wednesday) and the FBI arresting Sergey at Newark (on Friday).

And here is what seems to be the challenge for all hackers out there:

THE COURT: Well, what makes you think that it hasn’t already been transferred since you do now know whether other people have access to the Germany server? It’s already compromised, so the financial institution has to take steps now if you’ve made it aware of the compromise to adjust for the loss of its trading platform.

MR. FACCIPONTE: Your Honor is correct. I could’ve been disseminated in this time. It does not mean, however, that if it has not been disseminated we should not take steps to prevent the defendant from disseminating information if it is not already out there.
...

THE COURT: If as you say, the material is on the server in Germany, if anyone can access the material through that server, that is to say it is not only the defendant who can access it; he might be able to provide other persons with information that would allow them to access it, if that’s so, then what difference does it make whether he’s detained or not if he can communicate that information?

MR. FACCIPONTE: Right now our understanding is that the server can only be accessed by someone who has his user name and password.

THE COURT: Who has what, sir?

MR. FACCIPONTE: His user name and password.

THE COURT: Okay. So if he gives that to you, you can access that, isn’t that correct?

MR. FACCIPONTE: That is correct, Your Honor.

THE COURT: So whether he’s detained or not doesn’t him from communicating that information to you or anyone else. And therefore the server could be accessed and the financial institutions and the markets compromised as you have described.

MR. FACCIPONTE: It would certainly be more difficult, Your Honor. And I don’t believe the public ought to bear the burden or the risk of that coming to past. In addition --

THE COURT: But if he’s detained, what prevents him from communicating the information? That’s what I don’t understand.

MR. FACCIPONTE: It would be a lot harder. He would have to at the very least enlist and accomplice.

THE COURT: Okay.

MR. FACCIPONTE: Which people may not want to be accomplices. [TD: not so sure about that one]

THE COURT: That’s true whether he’s detained or at liberty.

MR. FACCIPONTE: Okay. But if he’s at liberty he would not necessarily -- he would not need an accomplice. He could just pass it on to another server somewhere.

THE COURT: He may already have accomplices who may have the information that can access the server in Germany. Whether he’s detained or not, I still don’t understand why being detained means the information can’t be disseminated to access the server.

MR. FACCIPONTE: Because the server -- if the server had been in the United States, Your Honor, we would already be preparing process to free --

THE COURT: But it’s not.

MR. FACCIPONTE: The government needs a few days, given the holiday weekend, it would be difficult to do that. But the government needs a few days to consult with German authorities to take the steps to freeze that server.

So if the court is not prepared to detain the defendant on a general showing, the government would at least ask that the defendant be detained until such time as they can secure the server, which we are moving to do even as we speak now.

THE COURT: I still don’t understand why detaining him prevents him from communicating information so that someone can access the server. If you make that clear to me, then I understand more acutely why you’re arguing that he should be detained.

MR. FACCIPONTE: Well, he would --

THE COURT: If it just makes it difficult, lots of things are difficult, but not impossible.

MR. FACCIPONTE: If he were detained now, for example, I don’t believe he would have immediate access to telephone privileges at the NCC or MDC. I believe it takes days to set those accounts up. He would have to tell somebody physically. I don’t believe anybody would -- he would have to enlist a co-conspirator right now.

And I think when you weigh the probability of him engaging in that behavior and being able to pull that together, first is the potential risk of just letting him go, I believe he ought to be detained. Because he still has more burdens in prison to disseminate his information than he does if he’s out in the street.

So if he’s out in the street, he just needs access to a cell phone. In prison, he needs to get access to a phone which is not a right if he is detained. He would need to write a letter. A letter takes several days to get to where it needs to go.

In the meantime, we would have -- we would very likely have the server locked down at that point in time.

So in a nutshell, here is Goldman's manifesto: Yesterday - Program Trading, Today - Germany, Tomorrow - The World.

hat tip Reuters

Comments

[John Galt:]

"MR. FACCIPONTE: It would certainly be more difficult, Your Honor. And I don’t believe the public ought to bear the burden or the risk of that coming to past. In addition --"

Makes me want to puke up my morning coffee. Tell us you want to skim the market, or that it's your private property, or that you don't like being robbed, but PLEASE don't tell us it's for the safety of the public to lock this guy up. YOU want to try and rob everybody instead of lettting somebody else try.

You know for darn sure that if he's locked up, he's getting solitary confinement and that he has no chance at giving up important information.

Jul 08 08:32 AM

[Rollerball:]

Score another TD! Thank you for providing this. Reading the transcript, I felt like I was in the gallery where the real fireworks were. Take note all you GS mercs, lest you be shown (to) the Cheney Room in the basement at 200 West.

Jul 08 09:19 AM

[User 305589:]

why not just call the marines and just nuke that server in germany - after all, we are talking about safeguarding Goldman's holy profits. That should justify any means, shouldn't it? That the stolen code is all about manipulating markets (as Goldman had to confess in the course of events - see Tyler's other pieces on the subject) and robbing other market participants by obviously illegal tactics should be no matter of concern. After all, it is Goldman - moral standards and the rule of law should not be applied to them as that would just be too big an obstacle in their mad hunt for ever larger profits!

Detain the guy, torture him, threaten germany to immediately hand the server over to goldman - it's in the interest of Goldman's national security! Obama should interrupt his Russia visit and fly straight to Berlin! Nothing could be more important to the ordinary U.S. citizen and his well being than the safety of Goldman Sachs' profits.

Jul 08 09:28 AM

[Moon Kil Woong:]

This was quite humorous to read. Thanks Tyler Durden.

I suppose the judge couldn't ask these questions:

If the information possessed on the server stolen from Goldman poses a threat to the market because it can so easily be used to manipulate them what prevents Goldman itself from using the same information which was the source of this data from being disseminated and used in the market?

How long has Goldman held such information? And shouldn't Goldman's proprietary trading servers be seized and confiscated since they pose suce a great threat to national security?

Does this mean all employees who have intimite knowledge of this "national security" data be required to get government clearance since it poses a serious threat to national security?

Dear Goldman Sacs: Have you really thought through the consequences of your argument? If you have, no wonder you kept it secret for so long! You probably should have kept it that way.

By the way, we all are so curious to see such malicious code. It sounds like GS concockted a hackers wet dream and has been using it quite some time now.

Jul 08 09:34 AM

[doubleguns:]

"And I don’t believe the public ought to bear the burden or the risk of that coming to past."

Is the public any safer with this information in the hands of GS. I think it should be disseminated to the world so something can be done to prevent its use by anyone.

I suspect the Germans are having a good look at this information right now for their banks.

The genie can not be put back into the bottle now. I suspect revealing it will pull the curtain back on the PPT once and for all and a review of past trading will show who has been playing in the waters.

The Germans now have a big chip to play with US and GS.

As a final note even a simpleton would have sent it to more than one location. JUST IN CASE. So this server is just the tip of the iceberg or possibly a ruse.

Jul 08 10:20 AM

[stockferret:]

This is such crap. My team works with law enforcement every day to put fraudsters in jail and we never get them to move this fast. We are talking about arresting 100's of people a year. And these people have committed actual crimes and caused losses in the 6 figures and sometimes 7 figures not just that they could theoretically cause losses.

Total crap. Must be nice to be the 4th branch of government.

Jul 08 10:56 AM

[mdmrjsds:]

I suspect there really *are* national security repercussions here. Some part of our government security apparatus is in agreement with Goldman Sachs to monitor all transactions on their servers. If government organizations are looking for illegal cash flows from money laundering operations and terrorist organizations, wouldn't it make sense to look where there are large flows of money accompanied by identifying information?

It explains the fast FBI response. And it would explain a lot of the government's actions regarding Goldman Sachs as well.

Or maybe I'm just feeling paranoid this morning. :-)

Jul 08 01:24 PM

[Michael Terry:]

"I believe, Your Honor, that the financial institution, I think the position here is that whatever steps the financial institution can take, the financial institution essentially has no way to effectively protect itself against the loss of this program. Once it is out there, anybody will be able to use this. And fair market share would be adversely affected."

Translation: The program could be used against the "financial institution" the same way they use it against others. Wouldn't want to eat up TARP money now would we?

Jul 08 01:48 PM

[bti:]

“The bank has raised the possibility that there is a danger that somebody who knew how to use this program could use it to manipulate markets in unfair ways,” Mr. Facciponti said

This is an astonishing statement by a representative of the government.. Why is it not being addressed in the mainstream media? GS knows "how to use this program". Isn't it incumbent on government market watchdogs to investigate a program which they themselves say could be used to manipulate the market in "unfair ways"? How can they be assured that the program is not being used by Goldman to manipulate the market in an unfair way?

Jul 08 02:53 PM

[bthomas:]

Is anyone at GS being indicted? Is this real? An institution can manipulate with impunity, but an individual cannot? WTF judge? BTW what's with all the typo's in this transcript? Starting with "United States of Americas" on the first page. They are numerous. I admit I don't know the intricacies of transcription, but amidst instead of admits? etc... Clearly this piece poses more questions than it answers. This is astounding.

Jul 09 08:49 AM

[doubleguns:]

bthomas:

We like TD because of the information uncovered not that he is an English major.

Jul 09 09:45 AM

[Bill S. Friend:]

Absolutely astounding. Law enforcement doesnt act this fast in murder cases as Tyler has pointed out. Knowing all this why does anyone have any money at risk in the stock market? The fix is in!

Jul 09 09:10 PM

[fed_alchemy:]

They say when the tide goes out, you can see the dirty rotten scounrels. This market , politicians, regulators and mainstream media have been outed as a sham. But TD you have risen to the task

Jul 09 09:40 PM