[ by Howard Haykin ]

Sergey Aleynikov, 42, formally indicted Thursday on New York state criminal charges of stealing proprietary trading code from his former employer, rejected a plea offer that would keep him out of prison, his lawyer said.  And with that, we enter into the latest chapter or battle in this drawn out legal battle. 

Under the proposed deal, Aleynikov would not have to serve additional prison time beyond the one year or so he's already served following his conviction on federal charges.  Manhattan Assistant D.A. Joanne Li told State Supreme Court Justice Ronald Zweibel that her office had offered Aleynikov a sentence of time served in exchange for a guilty plea.

Instead, Aleynikov entered a plea of not guilty Thursday to 2 counts of unlawful use of secret scientific material and 1 count of unlawful duplication of computer-related material.  Then attorney Kevin Marino told the judge that his client, Aleynikov, rejected the state's offer, and added that he would move to dismiss the case based on double jeopardy - prosecution twice for the same offense - and accused state prosecutors of having "no sense of decency."

"The precise factual circumstances that underlie these charges have already been fully adjudicated.  There's nothing remotely lawful or constitutional about what's going on ... He left Russia for freedom and the American way, and he got Franz Kafka and Goldman Sachs."  -- Mr. Marino.

Closely Watched Case. Federal prosecutors are seeking to establish well-defined bright lines for determining guilt in the new realm of complex cyber crime - an area of criminal law that's not been well-tested in courts amid debate about which laws apply and what types of conduct can be considered criminal behavior. 

Prosecutors accuse Aleynikov, a dual citizen of the United States and Russia, of stealing code used in Goldman's high-frequency trading system in 2009 before leaving to join Teza Technologies LLC, a rival start-up in Chicago.  He was convicted in 2010. 

Conviction Reversed by Appeals Court.  However, the conviction was reversed in part because the appeals court said the Justice Department failed to show that the stolen code was intended for "interstate commerce," a necessary element under the federal Economic Espionage Act.

Just 6 months later, however, in August he was again arrested and charged this time by New York state prosecutors.  If convicted in state court, Aleynikov could face up to four years in prison.

Li, the prosecutor, said the case does not violate double jeopardy and pointed out that Marino himself suggested in federal court papers that this type of offense is more properly prosecuted in state court.

In a statement, the head of the Manhattan District Attorney's cybercrime unit, David Szuchman, said the appeals court "very clearly" suggested that Aleynikov's conduct could violate state law. He rejected Marino's contention that his office was acting as a proxy for the Justice Department in renewing the prosecution.

"On our own initiative, we contacted federal prosecutors and asked for their cooperation in filing a state criminal case to make sure this defendant was held accountable for his criminal conduct," he said.  "Any suggestion that we filed these charges for any other reason is false."

Aleynikov will remain free on $35,000 bail.  Prosecutors will permit him to travel to Russia for about 1 month to visit his mother, who is undergoing cancer treatment.

The case is People v. Aleynikov, New York State Supreme Court, New York County, No. 60353/2012.

For further details, go to:  [Reuters, 9/27/12].