By David Glovin and Christine Harper

July 6 (Bloomberg) -- Goldman Sachs Group Inc. may lose itsinvestment in a proprietary trading code and millions of dollarsfrom increased competition if software allegedly stolen by aformer employee gets into the wrong hands, a prosecutor said.

:S:d1" onmouseover="return escape( popwSearchNews( this ))">Sergey Aleynikov, an ex-Goldman Sachs computer programmer,was arrested July 3 after arriving at Liberty InternationalAirport in Newark, New Jersey, U.S. officials said. Aleynikov, 39,who has dual American and Russian citizenship, is charged in acriminal complaint with stealing the trading software. TezaTechnologies LLC, a Chicago-based firm co-founded by a formerCitadel Investment Group LLC trader, said it suspended Aleynikov,who started there on July 2.

At a court appearance July 4 in Manhattan, Assistant U.S.Attorney Joseph Facciponti told a federal judge that Aleynikov’salleged theft poses a risk to U.S. markets. Aleynikov transferredthe code, which is worth millions of dollars, to a computerserver in Germany, and others may have had access to it,Facciponti said, adding that New York-based Goldman Sachs may beharmed if the software is disseminated.

“The bank has raised the possibility that there is a dangerthat somebody who knew how to use this program could use it tomanipulate markets in unfair ways,” Facciponti said, accordingto a recording of the hearing made public today. “The copy inGermany is still out there, and we at this time do not know whoelse has access to it.”

‘Preposterous’

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

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

Defense attorney Sabrina Shroff said in court that thegovernment’s allegations are “preposterous.” The firm was awarethat Aleynikov, who is the father of three young girls, wasdownloading programs to his personal computer to do work at homeand that he hasn’t disseminated the code, the lawyer said.

“If Goldman Sachs cannot possibly protect this kind ofproprietary information that the government wants you to think isworth the entire United States market, one has to question howthey plan to accommodate every other breach,” she said.

:S:d1" onmouseover="return escape( popwSearchNews( this ))">Michael DuVally, a spokesman for Goldman Sachs in New York,declined to comment.

$750,000 Bail

U.S. Magistrate Judge :S:d1" onmouseover="return escape( popwSearchNews( this ))">Mark Fox ordered Aleynikov, who earned$400,000 a year, to be held by on $750,000 bail, afterprosecutors claimed he posed a threat to the community. Aleynikovplanned to earn three times his salary by joining a startupcompany and engaging in high-volume automated trading,prosecutors said. Aleynikov posted bail today and was released.

Link to the Full article: Bloomberg