Zerohedge.com is reporting that the proprietary algorithm used for market analysis and program trading has been compromised by a former Goldman Vice President working in the GS quantitative equity trading desk. The implications of this are staggering, as Goldman Sachs is the heaviest equities trader in the world. According to sources cited at ZeroHedge and below, 32 megabytes of “ultra top-secret quant trading proprietary code” was downloaded about a month ago, right around the time the GS employee left the firm.

The trading system as described in the Complaint filing by the United States government:

The Financial Institution has devoted substantial resources to developing and maintaining a computer platform that allows the Financial Institution to engage in sophisticated high-speed, and high-volume trades on various stock and commodities markets. Among other things, the platform is capable of quickly obtaining and processing information regarding rapid developments in these markets.

This begs the question: Who was the buyer?

It may have been a firm in Chicago according to the Reuters article, or perhaps another trading firm. Or, perhaps an international link? The suspect, Sergey Aleynikov, allegedly uploaded the code to a website in Germany, which is owned by someone in the UK. Could be nothing, of course. SHTF contemplates that there may be much more to this story, as was recently discussed in The Hitmen Cometh: Third Parties Rumored to be Attacking US Dollar, Treasury Bonds and Gold Suppression.

Zero Hedge:

If the allegations are true, it looks like Goldman’s hi-fi quant trading desk was thoroughly penetrated by a “spy”, and as readers will recall, Serge(y)’s description of his job duties mirrors what Mr. Ed Canaday conveniently provided to Zero Hedge as a description of Goldman’s SLP program. (Sources connected with the office of the United States Attorney have confirmed to Zero Hedge that Aleynikov was at one time or another a Goldman employee.”).

The plot thickens: per FBI agent Michael McSwain’s sworn deposition, Sergey quit a firm described as “Financial Institution” in the affidavit, which according to circumstantial evidence and according to Goldstein is none other than Goldman Sachs, on June 5, at that time earning $400,000 annually. As Matt reports, he proceeded to move to a Chicago firm engaged in “high volume automated trading” where he would make 3x his $400k salary (Hey Getco, is it time for a formal release at least denying you guys had anything to do with this, cause if you did it might not look that hot. No matter, we have reached out to our sources in law enforcement to confirm or deny Getco’s, and Goldman’s, involvement: once we get a response we will immediately advise our readers).

Shadow Capitalism, asks Goldman: Pwned?

This is pretty amazing stuff folks.

Industrial espionage is nothing new of course.  Firms try to “hire away” important employees all the time, and frequently what they want is what’s in someone’s brain – employment agreement be damned.

The bad news for Goldman though is that if this code is now in the hands of who knows how many other people, what sort of fun could ensue by knowing how Goldman is analyzing the markets?

This could be kinda fun to watch…. from a distance, of course 🙂

Indeed. The last 4 weeks, curiously, have seen the stock market stay in a trading range and do some crazy stuff, for no apparent reason. This may be normal market behavior of course. But, if it is someone testing ‘hacks’ against the GS algo, it could be very serious. ZeroHedge suggests that this is serious enough in scale to become a national security threat.

More Resources:

Reuters: A Goldman Trading Scandal?

United States of America v. Sergey Aleynikov (Complaint Filing and Charges)