Sergey Aleynikov Seeks Dismissal of Case - Goldman May Beg to Differ

| About: Goldman Sachs (GS)
This article is now exclusive for PRO subscribers.

Bloomberg is reporting that Sergey Aleynikov wants a dismissal of his criminal case. Whether or not Goldman (NYSE:GS), which woke the FBI at 3 am to get on the case stat, will agree with his view is a different point entirely:

At a hearing in Manhattan federal court on Aug. 10, defense attorney Sabrina Shroff said she will seek to persuade prosecutors to enter into a rare “deferred prosecution” agreement. Under such agreements, prosecutors usually agree to dismiss criminal charges provided a defendant doesn’t break the law for a specified period of time.

“I’m seeking a deferred prosecution in this matter,” Shroff, who declined to comment today, said in court on Aug. 10, according to a transcript of the hearing. “I’m looking to show the United States Attorney’s Office that my client never engaged in any improper behavior, was a well-respected employee, was not fired, was not reprimanded, nor were there any complaints issued against him.”

As a reminder, Sergey was arrested on July 3 and charged with "theft of trade secrets and transportation of stolen property in foreign commerce" and that the proprietary code, worth millions of dollars, lets the firm do “sophisticated, high-speed and high-volume trades on various stock and commodities markets,” prosecutors have said in court documents.

The Aug. 10 hearing was called for a judge to weigh a request by Shroff that Goldman be forced to turn over Aleynikov’s personnel file. U.S. District Judge Paul Crotty in Manhattan granted the request after Shroff said she couldn’t seek a deferred prosecution deal until she reviewed his Goldman file. Goldman Sachs had refused to surrender the records.

What is deferred prosecution?

It is common for lawyers to seek deferred prosecution deals with prosecutors, who rarely grant them. Among the beneficiaries of such agreements were former Credit Suisse Group banker Frank Quattrone, who was accused of obstructing justice, and the accounting firm KPMG LLP, which was accused of conspiring to sell illegal tax shelters.

At this point the smart money is on this case getting promptly swept under the rug, especially as Goldman has recently went on an aggressive reputation cleansing crusade, and the Aleynikov case is likely merely a case of remote file back up. If the prosecution had evidence that the Russian had actually distributed or sold the code, it would have been made widely available by now. The subsequent question is will a dismissal restore all pre-existing rights to Teza, will Misha Malyshev be allowed to recover the $100 million owed to him by Citadel, and will the new outfit attempt to recreate the HFT platform that was the only profitable group in Citadel in the disastrous 2008.