A federal appeals court late Thursday reversed the conviction of Sergey Aleynikov, a former Goldman Sachs programmer found guilty of copying and removing proprietary code from the bank’s high-frequency trading platform, prior to starting a new job at Teza Technologies LLC, a high-frequency trading start-up in Chicago. At trial, Mr. Marino, the lawyer for Mr. Aleynikov, acknowledged that his client breached Goldman’s confidentiality agreements, but insisted that he did not commit a crime.  Federal prosecutors portrayed Mr. Aleynikov as a thief who stole Goldman’s closely guarded code to help his new employer.  After a 2-week trial, the jury deliberated for just 3 hours before reaching a unanimous guilty verdict. Aleynikov was convicted in December 2010 and sentenced in March 2011 to 8 years in prison.  [click to read C-I's account of the conviction - Who's New, 3/24/11] The Court of Appeal Ruling. The U.S. Court of Appeals for the 2nd Circuit overturned the conviction and ordered the trial court to enter a judgment of acquittal.  A judgment of acquittal generally bars the government from retrying a defendant;  the reversal was without explanation, though it was noted that an opinion would follow “in due course.”  The court ruling came just hours after a 3-judge panel heard oral arguments on Mr. Aleynikov’s appeal.

“We are pleased and gratified that the court of appeals has roundly rejected the government’s attempt to rewrite the federal criminal laws. Mr. Aleynikov spent a year in prison and suffered many other losses as a result of these unjust charges, but he never lost faith in his ability to win an acquittal. This is a wonderful day in his life.” -- Kevin Marino, Aleynikov’s lawyer.

A spokesperson for the U.S. attorney’s office in Manhattan declined to comment. Major Blow to DOJ and Goldman Sachs. The reversal deals a major blow to the Justice Department, which has made the prosecution of high-tech crime and intellectual property theft a top priority.  This case tested the boundaries of the Economic Espionage Act, a 15-year-old law that makes it a crime to steal trade secrets.  Federal prosecutors held up the arrest of Mr. Aleynikov as an example of the government’s crackdown on employees who steal valuable and proprietary information from their employers. The ruling is the 2nd time in as many months that the Federal Appeals Court in Manhattan has overturned a conviction secured by the U.S. attorney for the Southern District of New York.  In January, the appeals court reversed the conviction of Joseph Collins, a former outside lawyer to Refco, the collapsed brokerage firm, citing judicial error. For Goldman Sachs, the decision also is a loss.  The firm had reported Mr. Aleynikov to federal authorities after it accused him of stealing computer code. The bank had portrayed itself as the victim of a brazen crime. Arguments in the Appeal Hearing. A crucial issue in the appeal - and a main focus of Thursday’s oral argument - was whether Mr. Aleynikov’s actions constituted a crime under the statutory language of the Economic Espionage Act.  The debate centered on whether Goldman’s high frequency trading system was a “product produced for interstate commerce” within the meaning of the law. Lawyers for Mr. Aleynikov argued that the bank’s trading platform was built for internal use and never placed in the stream of commerce.  The government countered that the high-frequency trading system, which Goldman used to trade in markets around the globe, was clearly produced for interstate and foreign commerce. Mr. Aleynikov's Background. With a degree in computer programming, Mr. Aleynikov came to the U.S. from Russia in 1990.  His services were in demand at Goldman, which paid him $400,000 a year to write code for its high-frequency trading business, making him one of the bank’s highest-paid programmers. Teza Technologies, a new firm run by an executive from the Citadel Investment Group, lured him away from Goldman by offering to pay about triple what he made at Goldman.  During his last final days at Goldman, Mr. Aleynikov uploaded source code to a server in Germany that allowed him to do an end run around the company’s security systems. He was arrested shortly thereafter. For further details, go to:   [DealBook, 2/17/12].