August 15, 2012 / 1:02 AM / in 5 years

Analysis: New York can follow U.S. "roadmap" in Goldman cyber crime case

NEW YORK (Reuters) - The Manhattan district attorney has been handed a rare prosecutorial roadmap in his criminal case against a former Goldman Sachs computer programmer accused of stealing trading code from the bank.

Former Goldman Sachs computer programmer Sergey Aleynikov (L) smiles as he exits Manhattan Criminal Court in New York, August 9, 2012. REUTERS/Brendan McDermid

The office of Cyrus Vance, which could announce a formal grand jury indictment of programmer Sergey Aleynikov at a court appearance on Wednesday, will have the benefit of most, if not all, of the investigative material and trial evidence that the U.S. Justice Department used at Aleynikov’s federal trial.

While Aleynikov’s conviction at that 2010 trial was ultimately reversed by an appeals court, the evidence underlying the earlier case could prove valuable to state prosecutors who will not have to start from scratch as they pursue their charges. Aleynikov is now being charged under state laws, not federal.

The renewed prosecution of Aleynikov, which stems from accusations that the New Jersey programmer copied proprietary Goldman code before departing for a high-frequency trading startup, comes as U.S. authorities are on a push to tackle complex cyber crime. Aleynikov served about a year of an eight-year federal prison sentence before the 2nd U.S. Circuit Court of Appeals tossed out his conviction in February.

The case represents a chance for Vance to raise the stature of his cyber-crime unit. The most notable cases of the bureau, created in 2010, have targeted identity theft rings. City officials announced Tuesday a $4.2 million appropriation to expand Vance’s cyber crime lab, which performs forensic analysis on digital evidence.

The Aleynikov case “demonstrates very powerfully that the D.A.’s office is taking seriously the threats of cyber crime and theft of trade secrets,” said Joseph DeMarco, a former federal prosecutor.

Vance’s office and the Manhattan U.S. Attorney’s office declined to comment.

In the state case, Vance could introduce evidence from Goldman that Aleynikov copied the bank’s code and tried to hide his digital tracks, and could introduce investigative material gathered by federal agents and witness testimony from the federal trial.

Authorities at the federal and state level frequently share information and evidence, and that principle should not change in this prosecution, several legal experts said.

Unlike in New York state cases, in which an acquittal or a vacated conviction automatically seals court records, federal trials remain in the public record, experts said.

Vance is prosecuting Aleynikov under charges of stealing “secret scientific material” and “computer related material.” Under state law, Vance will need to prove that Aleynikov copied secret code for his own use despite knowing he had no right to take it.

The felony charges are less serious than their federal counterpart, carrying a maximum sentence of 1-1/3 to four years in prison.

Kevin Marino, Aleynikov’s lawyer, called Vance’s prosecution of his client “ridiculous,” pointing out that the year Aleynikov already served in prison is roughly the same term he would likely face if he were convicted in state court.

“This is precisely the type of extraordinary circumstance that cries out for someone to say, ‘Basta! Enough,'” he said in an interview.

UNUSUAL CIRCUMSTANCE

Cases in which state authorities charge defendants whose federal prosecutions were unsuccessful are rare.

In one instance, Carmine Polito and Mario Fortunato were convicted in 2003 by a Brooklyn federal jury of hiring hit men to kill two people. After a federal court reversed their convictions, state prosecutors charged the two men with murder.

Defense lawyers on the case said the state trial was virtually identical to the federal prosecution, relying on the same witnesses and physical evidence.

Polito was eventually acquitted. Fortunato was found guilty but a state appeals court ultimately threw out the conviction.

The outcome illustrates that even a ready-made federal case is no guarantee of success at the state level.

DOUBLE JEOPARDY?

Marino, Aleynikov’s lawyer, said at his client’s initial state court appearance last week that he will fight the new charges on double jeopardy grounds.

Under the U.S. Constitution, a person cannot be prosecuted twice for the same crime. The U.S. Supreme Court, however, has found that double jeopardy is not applicable when two different jurisdictions -- federal and state governments, for instance -- prosecute the same defendant for the same crime.

In New York, state law grants defendants broader double jeopardy protection, barring a second prosecution for the same acts as long as the previous charges were brought anywhere in the United States. But there are exceptions.

If a judge throws out a federal prosecution because the government failed to establish a necessary element of the crime, and that element is absent from a New York statute, double jeopardy is not an issue.

In the Polito-Fortunato murder-for-hire case, defense lawyers argued that the state prosecution amounted to double jeopardy. New York’s highest appeals court disagreed, ruling that federal prosecutors had failed to prove an element related to racketeering that does not exist in state law.

That appears to be the case with Aleynikov, whose conviction was reversed in part because the appeals court said the U.S. Attorney failed to show that the stolen code was intended for “interstate commerce,” a necessary element under the federal Economic Espionage Act.

The state charges that Aleynikov now faces -- unlawful use of secret scientific material and unlawful duplication of computer-related material -- contain no such language.

It is perhaps ironic in retrospect that Aleynikov’s defense in his federal case seemed to invite a state prosecution.

“There is no doubt that the theft of trade secrets is a species of crime that has been traditionally prosecuted by the states,” Marino wrote in 2010 court papers, asserting that federal prosecutors had overreached.

Additional reporting by Grant McCool and Basil Katz; Editing by Martha Graybow, Noeleen Walder and Matthew Lewis

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