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Goldman Sachs Blew the Whistle--On Itself

|Includes: Goldman Sachs Group Inc. (GS)

When Goldman Sachs called, the FBI jumped. Right into action, arresting Sergei Aleynikov less than 24 hours after the complaint. There was none of the usual background work to determine that a crime had been committed. We have a suspect. Just bring him in.

Aleynikov, a former Goldman employee, was charged with having transferred 32 bytes of proprietary code, out of over 1000 bytes, offsite to a location of his own choosing. That is side by side with some other, non-protected code.

"Intent is an element of most white collar crimes." The fact that someone "took" the code does not by itself make it a crime--if it was by mistake, as the public defender asserts. It IS a crime if Aleynikov took the code with the intention of gaining an unfair advantage in the marketplace, or of helping someone else do this. So far, there has been no evidence put forward to support such a charge. "Innocent until proven guilty."

But by placing a criminal charge in such a public way, Goldman basically indicted itself--for high frequency trading. That's not a crime, although some think it should be. But certainly, if such code could be used by "others" to manipulate the market in "unfair ways," it could have been used by GOLDMAN to manipulate the market in unfair ways. What's the difference?

By prosecuting a wayward employee who may actually have done no harm, Goldman exposed its own secret, and highlighted its importance.