Sergio Posts Bond As Toxic Code Percolates In Cyberspace And Allows "Market Manipulation"

Tyler Durden's picture

Now Bloomberg is finally on Sergio's case. Cutting to the chase, assistant U.S. Attorney Facciponti has some choice words:

bank has raised the possibility that there is a danger that somebody
who knew how to use this program could use it to manipulate markets in
unfair ways,
” Facciponti said. “The copy in Germany is still out there, and we at this time do not know who else has access to it.

The prosecutor added, “Once it is out there, anybody will be able to use this, and their market share will be adversely affected.

The proprietary code lets the firm do “sophisticated,
high-speed and high-volume trades on various stock and commodities
markets,” prosecutors said in court papers. The trades generate “many
millions of dollars” each year

Not even going to attempt to elucidate in how many different ways the first sentence above is just...plain wrong. At least it is refreshing that none other than Goldman's own de facto attorney
admits that the firm has created a piece of code that permits "market
manipulation." When Goldman is the perpetrator, the manipulation is conveyed via
"fair ways." And when the manipulator is someone else, the ways become "unfair."

course, Goldman will be happy to know that according to PACER,
Aleynikov has just posted bail and is freely roaming the grounds of
SDNY, EDNY and District of New Jersey, however the "PTS Office shall be
permitted, to the extent possible,
to monitor the deft's use of computer's or other electronic devices at
his home or place of business to ensure that the deft does not access
the data that is the subject of this criminal action." Something tells
me monitoring Sergio's (former) place of business will yield a lot more
clues in the prosecution's gathering of data for criminal action.

I am too drunk but... what the hell is going on here? When will Kevin
Mitnick appear stage left and hold the world ransom for one hundred
million dollars after announcing he has hijacked every SPY ETF ever put
in circulation.


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Anonymous's picture

I wish someone to post the code into open forums to expose all the tricks!

calgaryschmooze's picture

There aren't Unix/Linux/BSD chroot jails strong enough to contain that concentration of evil.  This could just be one large Goldman Sachs financial rootkit.

Anonymous's picture

Evil is not a problem for Linux. I doubt any *nix cares much. I kept a large collection of viruses in a directory named virus at one point.

It's actually Golmand Sach's NYSE rootkit. Hopefully it will percolate to the wild. I want to look at it.

Anonymous's picture

Funny indeed the following coming from Goldman Sachs:

" The bank has raised the possibility that there is a danger that somebody who knew how to use this program could use it to manipulate markets in unfair ways ”

Unfair meaning, unfair to GS. LOL !

novanglus's picture

Isn't that a tacit admission that the program is capable of manipulating the markets?  And are we supposed to believe that GS is somehow uniquely immune to the seductive powers of such programs?  Hah!  


Confess! Confess!

eternalhope's picture

Truly a greek tragedy

Anonymous's picture

Greek tragedy or geek tragedy, that is the question

Anonymous's picture

By the way, Serge has a "wedding" video on youtube if anybody is interested.

akreitman's picture

What am I missing here? Did the the U.S. Attorney just accuse Goldman of building a system to unfairly manipulate the markets?  Does that mean that Goldman has to disgorge all their gains since they started developing that software?

Anonymous's picture

That first sentence really is a gem . . . nothing like a DOJ attorney publicly acknowledging that the unnamed "Financial Institution" admits that its software can be used to manipulate markets, but implicitly claims that such manipulation -- when done by Financial Institution -- is fair. I wonder what internal guidelines Financial Institution has to ensure that its manipulation of the markets is fair. Or, more generally, what internal guidelines it uses to distinguish between "fair" and "unfair" market manipulation. Mr. Cuomo -- are you out there?

Anonymous's picture

Just clicked through to the article -- I guess it's out in the open now that "Financial Institution" is in fact GS

Angel Face's picture

Exactly.  If it can be used to manipulate markets, why would it be ethical/fair for anyone to use it at all?  What a crock!

Anonymous's picture

Is there any primer here for what the hell is going on? Did I wait too long to load up on ammunition?

Anonymous's picture

This really screws up my trading system which was based on GS consistent and efficient market manipulation...back to the drawing board...

RobotTrader2's picture
RobotTrader2 (not verified) Jul 6, 2009 7:43 PM

Not sure what the big deal is.

Its pretty simple to follow Goldman's trading logic.

All breaks below 50-day averages are stick-saved within 48 trading hours.

All breaks above the 200-day are shanked within 48 hours.

Their programs are designed to keep the TA Black Boxes at other firms off-balance at all times.  Especially those of their best customers.

As far as micro-jamming high frequency trading the same bellweather stocks 100 times a day, or just simply going "all-in" with a giant bid at the end of the day (like they did with XOM today), it all has the same effect.

Anonymous's picture

I would love to see how it worked.
For instance:
What criteria were met for it to make a trade.
What determined how much (in terms of shares) would be bought and or sold.
I am a software engineer by trade and would love to see the entire code base.
I bet GS did learn a big lesson. Anytime you have a very valuable code never let any single developer see or have access to the entire thing. Anyone who works on it should only see what they need to.

This begs the question. Was the code stolen in it's entirety..or was it just a section or "piece".

Is there any sort of algorithm that can be derived from it?

Anonymous's picture

I'm guessing it would take a fair amount of time and technical assistance to install, configure and control this software. Without access to a developer familiar with the code, my guess is that it would take 3-4 times longer to deploy.

Of course, reading through the code and understanding conceptually what GS is trying to do would take less time.


Anonymous's picture

I think this is just pure evil vengence by Goldman Sachs to get back at Serge for leaving GS when he found a job that offered him 3x pay.

Serge probably ftp'd his work related stuff to a storage space in Germany (which he was familiar with) to be downloaded later at his home. I am sure most professionals carry a backup of THEIR WORK (here a chunk of opensource code + some inadvertent proprietary material) as a memento or for future reference. I am guessing he did not carry a nand drive with him always. He did a foolish thing but the intent may not be to outcon the CON Masters GS - the giant vampire squid.

Anonymous's picture

The code is simple.

That right there has been following the down/up movements with great precision (macro or micro). Anything more is overkill.

Anonymous's picture

Do you all think this really means anything. At this point in time I'm ready to believe that this is just situation normal and has been this way for sometime and there is nothing anyone in gov't will do to fix it. Wasn't it Abbie Cohen of Goldman who in February of 2000 touted that the NASDAQ was finally getting the respect it deserved at 5100 only to change her mind two weeks later and say the NASDAQ was overpriced thus starting the collapse of the tech bubble? Was anything done about that particular pump and dump. If nothing done then, why now woould anything be done now..

Anonymous's picture

Ah, Abby Joseph Cohen...if jolted from sleep in the middle of the night she would reflexively scream "We see the S&P as 10% undervalued according to our models!" No matter where its trading, how it got there, or whats on stage, according to Abby it's always 10% undervalued. Now they just give her a blindfold and cigarette before she fires her dart at the chart to generate her prediction.

Anonymous's picture

According to the laws of chaos theory... it's just a matter of time before the code is publicly available.

Information wants to be free.

Each owner of the information is another exponentially larger source for random exposure to a greater circle of people.


(It'll be torrented on PirateBay before you know it...)

Larry Livingston's picture

The code is simple. :FIBS/resist/support/ema/dma/rmi/dmi/timeseries/1.6/standev. That right there has been following the down/up movements with great precision (macro or micro). Anything more is overkill.


sorry for double post.  wasnt logged in......

EQ's picture

Based on the attorney general's statement, I suppose we can expect an FBI investigation into Goldman Sachs.  With an ultimate action of mass arrests.  BAAAAAAAAAHAAAAAAAAAHAAAAAAAAA!!!


Btw, the math questions from Captcha are getting tougher.

Anonymous's picture

a lot of this stuff is very dependent on the PYSICAL DISTANCE from the exchanges, and even if they had the code, they would need to be holed up in Wall St or Broad St. for it to work properly. these algorithms are taking advantage of circuit speeds and lag time

so pointless to speculate 'they' are profiting

Larry Livingston's picture

I get what you are saying but could you elaborate.  I find it fascinating. ty.

FischerBlack's picture

Well, yeah, it should be relatively obvious that this code can't be used by any but a handful of existing operations, if at all. I don't think these existing operations need to be reminded that geography is important.


Anonymous's picture

As someone sitting about two blocks from Broad St. right now, I can tell you there is no shortage of available commercial real estate around here...

Anonymous's picture

Anon #4950 is correct, without physical co-location, it's not going to work. I won't get into details, the uninformed speculation here is too amusing.

In addition to proximity, your eyes would spin if you knew the amount of infrastructure tweaking (servers, network, messaging, etc) that it takes for a system like this to operate correctly.

Just getting a copy of the code won't even put you on the same planet as a system like this.

FischerBlack's picture

Well, duh...

The whole point is that the code is useful to only a handful of existing operations if it's useful to anyone at all. You don't get the code and then figure out how to make use of it.

I figure it like this: You have an existing operation and you feel like you're missing something. So you hire the guy who knows how to build what you're missing. He flat out refuses unless you sweeten the deal. You agree to triple his salary. He agrees, but he still doesn't want to build a 35MB trading program again from scratch. So, unbeknownst to you, he takes a shortcut. He saves some of the code from the original and figures he can recycle most of it as it is needed. No malicious intent, just lazy.

Anonymous's picture

low latency market data and trade execution is key to taking advantage of point-in-time market conditions. what #4950 is saying is that unless you have access to the kind of computing platform GS does (holistically: connectivity, proximity, distributed CPU, software framework (highly unlikely this is stand alone code)), the leaked code may not be very useful. could bolster a case for "accident" or intent to distribute/reuse at an entity capable of reproducing a similiar platform.

ReamUs's picture

This is one of those days when can't open your mouth without a song jump right out of it!

Now the first rule of Song of the South is: You do NOT talk about Song of the South.

I s'pect Br'er Goldman and Br'er Sachs may be up to NO good! But y'know what, honey? Just thinkin' about it sure does take the Zipadee Doo Dah right outa my day...

I don't know much about computer codin' or bankin' - but I do know that a bunch of folks slappin' at that tar baby ain't gonna change a thing. 

So until somebody or 'nother takes some ACTION, I think I'm gonna head over to my Laughin' Place. 'Cuz wallowing in all that misery ain't good for much of nothing. 

Sorry - stepped into the wrong movie. My bad.

agrotera's picture

whatever you do, ples jus don't thow me in that briar patch!

ReamUs's picture

And he hopped on over the hill and out of sight.

Anonymous's picture

Goldman has stated this will not affect their operation one iota. Seems no market condition can affect their operations. I would love to be on the right side of a trade 99% of the time! When is this gonna end??

Arm's picture

Yeah.  Thing with Goldman is they are never on the wrong side of the trade... until they blow up.  Then the government connections come in.


Anybody who believes Goldman is a good trading outfit either does not know anything about markets or has an investment time horizon of one month.   Goldman went broke last October... not just broke, but spectacularly broke.  They were going to make Lehman look good, but of couse the AIG rescue prevented that.  I would never invest with an outfit that foolishly invests like a casino and then hedges all its risk with one single player that everybody knew was liable for billions if the event they were insuring ocurred.  

Comrade de Chaos's picture

I wonder what was his motive? My bet would be good old revenge. I guess someone else got promotion while putting less hours but being part of good boys network.

A huge indication in favor of the revenge motive is how silly and shallow his plan (if any) was.

Anonymous's picture

GS needs a scapegoat for A) even more irrational and bizarre market behavior going forward, which is a house specialty; B) sinking markets; C) its own forthcoming performance declines; and D) to deflect heat which has been advancing on it daily, generating extreme discomfort.

Thus, a very public case of industrial espionage involving overseas entities.

BTW, isn't Germany insisting on the repatriation of all its gold held in US/GS custody?

hedgnome's picture

The bank has raised the possibility that there is a danger that somebody who knew how to use this program could use it to manipulate markets in unfair ways,


This quote is echoing in my head.

Is this a slip, or is it simply saying that it would be unfair to Goldman Sachs that their code got stolen?

Proprietary code, which could be used to "manipulate the markets in unfair ways", yet somehow designed by GS for some other purpose. As surely Goldman Sachs has no reason to be manipulating markets, they can be trusted with such a program.

I never thought it would be given to you on a silver platter Tyler.

This is no longer a question of capability as that is laid out crystal clear in front of us, it is a question of whether it can be proven that they have used it for so called "market manipulation" through empirical evidence, and even then whether this "manipulation" would be easily classified as criminal. Then you see how far down the rabbit hole it goes.

Anonymous's picture

Someone give me this code. We wants it.

And then in place of the Dark Lord you will set up a Queen! And I shall not be dark, but beautiful and terrible as the Morning and the Night! Fair as the Sea and the Sun and the Snow upon the Mountain! Dreadful as the Storm and the Lightning! Stronger than the foundations of the earth! All shall love me and despair!

Anonymous's picture

Speed is the critical and limiting factor. Hence, he goes to citadel. the enron team (a company found guilty of market manipulation) was hired by citadel. So they would be interested in an algorithm for market manipulation.

Ajas's picture

My take on this is that Sergey is telling the truth... why?  Simple, the COST of him attempting something malicious against GS and failing far, far outweighted the BENEFIT of succeeding... guy with a family starting a $1.2 M/yr job?

No, this was pure payback for leaving "The Firm".  This was a warning message to every single GS employee that literally the DAY you leave, you are an enemy.  And GS doesn't benefit from having every single of the world's best hackers alerted to the fact that the most sought-after trading riches are sitting around on some po-dunk FTP server in Germany... and on its back-up drives... and on personal back-ups... with copies in FBI evidence vaults and their back-ups.

It just doesn't make sense for GS to invite the gov and the public into its gravest crisis... unless there is no crisis.


Anonymous's picture

Well, there is no evidence to substantiate your position. And the logic is faulty. I will give you this. Large companies are not reperesentative of democratic ideals but often run more like Stalin gulags. Your point about being the enemy when you leave is often true. Unless they are the one initiating the extermination. Especially the lower on the totem pole. ie, Not part of the club. Another reason to cut these anti-competitive firms down to size by breaking them up.

Anonymous's picture

Let's take the GS side for a second. Say this is not a material breach that affects the trading operations. Fine. But why would a sitting district attorney represent it as such?

“Once it is out there, anybody will be able to use this, and their market share will be adversely affected.”

Something has to give. Either GS needs to disclose to their shareholders that a material breach of security occurred or the US district attorney of the SDNY has clearly misrepresented the facts. Am I completely out of my mind?

Altan311's picture

You are not completely out of your mind; you are asking a relevant question, one I'm sure many Goldman investors are asking right now...

Anonymous's picture

Why was he arrested? Shouldn't this be a simple civil dispute among employee and employer? Why does Goldman get the power to arrest an ex-employee. (or for that matter, any big monolithic employer...)

Ajas's picture

BTW, this a legal filing... REALLY?!  I thought apostrophizing plurals was strictly an internet phenom.

"to the extent possible, to monitor the deft's use of computer's"

At first I thought it was TD's transcribing error... but no.  It's in the original.  Original author strongly encouraged to benefit from Steve's Grammatical Observations...