In Goldman Programmer Case, a Way Around Double Jeopardy

The legal odyssey of Sergey Aleynikov, a former Goldman Sachs computer programmer, has been so complex that it's like the Grateful Dead's lyrics “what a long, strange trip it's been.”

He was convicted in federal court of stealing computer code from Goldman, only to have the conviction reversed on appeal, which resulted in his release after spending a year in prison. A few months later, the Manhattan district attorney charged him with essentially the same violations, which led Mr. Aleynikov to file a lawsuit against Goldman to force the firm to pay for his lawyer.

The battles involve some of the more arcane areas of the legal system in which things are not always what they appear to be.
Mr. Aleynikov downloaded computer source code from Goldman related to its high-frequency trading system on his last day at the firm, which he planned to use in his new job setting up a competing trading platform.

The original federal charges accused him of interst ate transportation of stolen property and theft of trade secrets. But the United States Court of Appeals for the Second Circuit reversed the convictions by concluding that computer code was not tangible property that came under the two statutes.

The state charges avoid the problem in the federal case because computer programs can be the basis for a prosecution under New York State laws prohibiting unlawful use of secret scientific material and unlawful duplication of computer related material.
Kevin Marino, Mr. Aleynikov's lawyer, plans to challenge the latest prosecution as a violation of the protection afforded defendants against double jeopardy, which prohibits a second prosecution for the same offense. But figuring out the scope of double jeopardy is not easy. Chief Justice William H. Rehnquist once wrote that the legal doctrine was “a veritable Sargasso Sea which could not fail to challenge the most intrepid judicial navigator.”

The basic idea behi nd double jeopardy is deceptively simple: prosecutors should only get one chance to convict someone for a crime. But there is a significant loophole in that protection known as the “dual sovereignty” doctrine that permits different governments to pursue the same case.

The leading case on the doctrine is Heath v. Alabama. In that case, a defendant pleaded guilty to murder in Georgia and was tried in Alabama for the same charge because the victim, his pregnant wife, was abducted from their home in that state and then killed over the Georgia State line. In upholding the conviction and death sentence in the second case, the Supreme Court explained that “an act denounced as a crime by both national and state sovereignties is an offense against the peace and dignity of both, and may be punished by each.”

Although the “dual sovereignty” doctrine allows New York State to charge Mr. Aleynikov with a similar crime, the state also has a statute providing that “a person may not be twice prosecuted for the same offense.” That provision blocks most cases involving conduct already prosecuted by another state or the federal government.

Once again, however, the law is not as simple as it first appears because the statute has an important exception if the earlier case was “terminated by a court order expressly founded upon insufficiency of evidence to establish some element of such offense which is not an element of the other offense, defined by the laws of this state.” Roughly translated, that means Mr. Aleynikov probably can be prosecuted again because the federal case focused on tangible property, while the New York charges cover computer programs.

There is a good chance the latest charges will move forward, which makes Mr. Aleynikov's demand that Goldman pay his legal fees all the more important because the earlier case essentially bankrupted him. According to a complaint filed in the United States District Co urt in New Jersey, he claims that the legal fees for the federal case were approximately $2.4 million, and the state case is likely to run up a similar bill.

It seems a bit odd that someone accused of stealing from his employer can demand that it pay for his lawyer, but that is how the law operates for public companies like Goldman that agree to indemnify their employees for legal fees and make advance payments of those costs.

Goldman's bylaws require it to indemnify an officer for all costs in any proceeding, including a criminal prosecution. As a vice president at Goldman, Mr. Aleynikov appears to come within the scope of the bylaws that entitle him to seek payment of his fees.

The bylaws commit Goldman to pay Mr. Aleynikov's fees in advance of a resolution of the case as long as he agrees to repay the money if it is determined he is not entitled to it, which he has done.

Fabrice Tourre, who is on leave as a vice president, is having many of his leg al expenses covered by Goldman as he faces a securities fraud lawsuit by the Securities and Exchange Commission. Goldman also paid a portion of the legal fees of its former director, Rajat Gupta, to defend him against insider trading charges, even though he was accused (and later convicted) of passing confidential information received from the firm.

Even better for Mr. Aleynikov is a provision of Delaware law, the state in which Goldman is incorporated, that requires a company to pay the legal fees of an officer who “has been successful on the merits or otherwise in defense of any action, suit or proceeding.”

When the appeals court reversed the conviction and ordered a dismissal of the charges, he was successful, even though the court also noted at one point that “Aleynikov stole purely intangible property embodied in a purely intangible format.”

That does not mean Goldman will pay the $2.4 million or advance additional money anytime soon, however. Companies loathe this type of claim because it makes them responsible for costs when they consider themselves the victim of a crime, and so there is an incentive to litigate the claim. Given Mr. Aleynikov's dire financial condition, the firm could try to stall the case in the hope that he will settle for a smaller payment.

The trip for Mr. Aleynikov has been long, and more than a little strange, but it is certainly not over yet.

Peter J. Henning, who writes White Collar Watch for DealBook, is a professor at Wayne State University Law School.