Goldman Must Front Fees for Ex-Programmer's Defense

, The Litigation Daily

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Goldman Sachs & Co. may regret bestowing the title of "vice president" on Sergey Aleynikov, the former Goldman employee accused of stealing the investment bank's proprietary source code. In a ruling issued on Tuesday, a federal judge in Newark determined that Aleynikov's fancy title demonstrates that he was an "officer" of the company, and that Goldman is therefore obligated to advance funds to cover his defense against criminal charges brought by the Manhattan district attorney's office.

"I hold that the term officer encompasses Aleynikov's position as vice president," wrote U.S. District Judge Kevin McNulty. "It may be the case that Goldman (or the industry of which it is a part) has been profligate in conferring the title of vice president. If so, Goldman must bear the consequence of that prolificacy. Goldman might easily have chosen to be more sparing with job titles, or to confer them in some other way."

In 2007 Goldman Sachs offered Aleynikov $400,000 a year to develop software capable of supporting the investment bank's high-frequency stock trades. In 2009 Aleynikov left Goldman for a job at a Chicago-based hedge fund.

The U.S. attorney's office indicted Aleynikov in February 2010, alleging that he tried to Goldman's trade secrets with him out the door. Aleynikov was convicted in December 2010 and sentenced to eight years in prison. The U.S. Court of Appeals for the Second Circuit reversed the conviction in February 2012, but six months later the Manhattan D.A. charged him with state crimes. In a recent Vanity Fair feature, financial writer Michael Lewis argued that Aleynikov was a misunderstood prodigy thrown under the bus by Goldman execs.

Aleynikov brought a lawsuit against Goldman in September 2012, claiming that the bank had wrongfully refused to pay his legal bills. Aleynikov's lawyer, Kevin Marino of Marino Tortorella & Boyle, pointed out that The Goldman Sachs Group Inc. states in its corporate bylaws that it will cover the legal costs incurred by directors and officers. Marino argued that his client was an officer of Goldman Sachs & Co., and is therefore entitled to seek indemnification for the money he already spent on the state and federal action, as well as advancement of legal fees to cover future costs arising from the state action.

McNulty is still weighing Aleynikov's request for indemnification, but the judge has now granted the advancement request. "Over a six-year period, some 53 persons associated with GSCo were considered for advancement or indemnification of legal fees. Of these 53, Goldman paid the fees of 51. And of those 51, 15 were GSCo vice presidents," McNulty wrote. "On its face, this would constitute persuasive evidence that a vice president is an officer entitled to advancement or indemnification under the bylaws."

Marino, Aleynikov's defense lawyer, said in a statement that "Goldman Sachs used its considerable power and influence to procure Mr. Aleynikov's prosecution for crimes he did not commit. It is only fitting that Goldman should now be forced to bear the cost of restoring his reputation."

A. Ross Pearlson of Wolff & Samson, who represents Goldman in the fee dispute, didn't immediately return a call seeking comment.

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