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Date Posted: 09:21:33 07/12/09 Sun
Author: Bobby N. Harmon, CPCU
Subject:

CODE THEFT COULD COST GOLDMAN MILLIONS, U.S. SAYS

"CODE THEFT COULD COST GOLDMAN MILLIONS, U.S. SAYS" - (An Exhibit in CV05-00030 - U S Dept of Justice vs Harmon)

July 12, 2009

From:
Bobby N. Harmon, CPCU

To:
"President Barack Obama" , "U.S. Attorney General Eric Holder" , "David Farmer" , "Steven Guttman" , "Carol K. Muranaka" , "Judge David A. Ezra" , "Judge Kevin S.C. Chang" , "Judge Barry M. Kurren" , "Securities & Exchange Commission Enforcement Division" , "U.S. Treasury Dept. Office of Inspector General" , "Office of Inspector General US Dept of Justice" , "Executive Office for U.S. Trustees" , "Judge Robert Faris" , "SEC Office of The Inspector General" , "Hawaii State Bar Association" , "Hugh Jones" , "Insurance Division Fraud Branch" , "Lawrence Reifurth" , "Linda Lingle" , "Jo Ann Uchida" , "Office of Inspector General Civil Rights Complaints" , "Mark Bennett" , "American Arbitration Association" , "Judith Neustadter" , "Benjamin J. Cayetano" , "Lokelani Lindsey" , "All Representatives" , "All Senators" , "Andrew Walden" , "Aon Insurance Managers" , "Arthur Rath" , "Benjamin Kudo" , "Bradley Tamm" , "Carl Morton" , "Charles Hurd" , "David Shapiro" , "Dee Jay Mailer" , "J C Shannon" , "James B Nicholson" , "James B. Farris" , "James Cribley" , "James Wriston" , "Jeffrey Watanabe" , "Jim Dooley" , "Joe Moore" , "John D. Finnegan" , "Judson Witham" , "Ken Conklin" , "Lyn Flanigan Anzai" , "Margery Bronster" , "Marsh Affinity Group" , "Michael N. Tanoue" , "Michelle Tucker" , "Nathan Aipa" , "Paul Alston" , "Randall Roth" , "Rick Daysog" , "Robert Bruce Graham" , "Robin Campaniano" , "Samuel P. King" , "William K Slate" , "Jim Terrack" , "Rocco Sansone" , "Ted Pettit" , "Laura Thielen" , "Vaughn & Lynda Robinson" , "Rebecca Christie" , "Catbird" , "James Duca" , "Ian Lind" , "Roy F. Hughes" , "Jack Cashill" , "Marshall Chriswell" , "Laser Haas" , "Lucy Komisar" , "Democrats.com" , "Debra Sweet" , "Jane Kirtley" , "John Jubinsky" , "Yamil Berard" , "Global Exchange" , "William K. Black" , "Carole Williams" , "Susan Tius" , "Human Rights in China" , "Michelle Malkin" , "Phil J. Berg" , "Amnesty International U.S.A." , "Michael Moore" , "California Anti-SLAPP Project" , "Thomas Fitton" , "Ron Branson" , "ACLU of Kentucky" , "ACLU Online" , "Louanne Kam" , "Paul Kiel" , "Fiona Tarazi" , "Eric Martinson" , "Bruce Nakaoka" , "Oswald Stender"
Reference:
http://www.reuters.com/article/businessNews/idUSTRE56663T20090708?pageNumber=2&virtualBrandChannel=11569

Code theft could cost Goldman millions, U.S. says

Jul 7, 2009

By Grant McCool

NEW YORK (Reuters) - The purported theft of a Goldman Sachs (GS.N) trading platform threatens to cost it millions of dollars, a prosecutor told a court, but so far the bank has not reported damage to its business.

Questions were raised about the security of proprietary trading systems at a court hearing on July 4 for a former Goldman computer programer arrested on a charge of stealing the information, which was copied to a server in Germany.

If the stolen information, or trading code, is allowed to go to a competitor who can start trading with it, "the bank itself stands lose its entire investment in creating this software to begin with, which is millions upon millions of dollars," warned U.S. prosecutor Joseph Facciponte, according to a transcript of Saturday's proceeding.

He added that because of the way this software interfaces with the various markets and exchanges, the bank has warned it could be used to "manipulate markets in unfair ways."

The FBI in New York said on Tuesday that measures had been taken to prevent code being sent from the server in Germany.

"Working through our assistant legal attache in Frankfurt and with the authorities in Germany, the FBI has taken steps to ensure that the appropriated code was not distributed," FBI spokesman Jim Margolin said.

Sergey Aleynikov, 39, who left Goldman on June 5 for a Chicago firm and was arrested last Friday night, gave consent to the FBI to visit his home in Little Falls, New Jersey, over the weekend and remove all of his personal computers, according to court documents.

They show that Aleynikov, a father of three and a dual national of the United States and Russia, told the FBI he was cooperating because "I did not think I was doing anything wrong" when he downloaded copies to his personal computer, laptop and to a flash drive.

He told investigators that Goldman Sachs knew he worked on the program from home and said nothing about it previously, according to the court record.

Aleynikov said he had no intention of selling the information or breaking his employment agreement. Aleynikov was arrested at Newark Liberty airport in New Jersey on a flight from Chicago on July 3.

On Monday, he was released on $750,000 bail, restricted to New York and New Jersey and ordered to surrender travel documents.

Goldman Sachs has declined to comment on the case. A source familiar with the situation said on Monday that the bank had seen no impact on clients or business.

PROTECTION

According to the transcript, Aleynikov's lawyer, Sabrina Shroff, argued in court that "the server happens to be in Germany is not known to anybody, nor was it a deliberate attempt because when you see a URL you don't know where the server is."

She told U.S. magistrate judge Kevin Fox that "if Goldman Sachs cannot possibly protect this kind of proprietary information that the government wants you to think is worth the entire United States market, one has to question how they plan to accommodate any other breach.

"I think the market is at risk no matter what then. It's not necessarily attributable to my client's actions," Shroff said.

A former Goldman technical employee said in an email to Reuters the issue was "a big deal" to most companies, not just Goldman, the biggest and most profitable securities firm until it became a bank last September in the financial crisis.

"Goldman is one of the few companies that protects its data and assets. A lot of companies don't pay attention to it," said the former employee, who asked not to be identified for professional reasons.

The prosecutor Facciponte said in court that the copy on a German server could have been disseminated already.
He said the platform was sent out on June 5, Aleynikov's last day at Goldman Sachs.

"We at this time do not know who has access to it and what's going to happen to that software," Facciponte told the magistrate judge.

"My understanding from the financial institution is that they do not believe that any steps they can take would mitigate the danger of this program being released," he told the court.

But he also said only someone with Aleynikov's user name and password could gain access to the server.

On Tuesday the office of the U.S. attorney in Manhattan cited the public record and declined additional comment.
(Additional reporting by Steve Eder and Elinor Comlay; Editing by Steve Orlofsky))

Also see: http://www.google.com/search?hl=en&q=Sergey+Aleynikov&btnG=Google+Search&aq=f&oq=&aqi=

After sending the above to a friend, she responded with this (Note- GS Code Theft Bombshell is the last posted item on the linked page):

There hasn't been time to check this out... but if true, OMG! MB

http://market-ticker.denninger.net/archives/P3.html

**FLASH** Goldman Code Theft BOMBSHELL?Something really ugly popped up on Daily Kos yesterday late in the
afternoon.....

...GS, through access to the system as a result of their special gov't
perks, was/is able to read the data on trades before it's committed, and
place their own buys or sells accordingly in that brief moment, thus
allowing them to essentially steal buttloads of money every day from the
rest of the punters world.

Two things come out of this:

1. If true, this should be highly illegal, and would, in any sane
country result in something like what happened to Arthur Andersen...

(2. ... is way off point....)

God help Goldman if this is true and the government goes after them. This
would constitute massive unlawful activity. Indeed, the allegation is that
Goldman alone was given this access!

God help our capital markets if this is true and is ignored by our
government and regulatory agencies, or generates nothing more than a
"handslap." Nobody in their right mind would ever trade on our markets
again if this occurred and does not result in severe criminal and civil
penalties.

There apparently is reason to believe that Sergey might have been involved
in exactly this sort of coding implementation. Specifically, look at the
patent claims cited on DailyKos; his expertise was in fact in this general
area of knowledge in the telecommunications world......

This is precisely the sort of thing that a Unix machine, sitting on a
network cable where it can "see" traffic potentially not intended for it,
could have an interface put into what is called "promiscuous mode" and
SILENTLY sniff that traffic!

ASSUMING THE TRAFFIC IS PASSING BY THE MACHINE ON THE WIRE THIS IS TRIVIALLY
EASY FOR ANY NETWORK PROGRAMMER OF REASONABLE SKILL TO DO. IF THAT TRAFFIC
IS EITHER UNENCRYPTED OR IT IS EASY TO BREAK THE ENCRYPTION.....

Folks, I have no way to know what the code in question does, but if there's
anything to this - anything at all - there is a major, as in biggest scam of
the century - scandal here - something much, much bigger than Madoff or
Stanford.
What would this mean, if it was all to prove up?

It would mean that Goldman was able to "see" transaction order flow - bid,
offer, and execute messages - before they were committed in the transaction stream. Such a "SNIFF" would be COMPLETELY UNDETECTABLE by the sender or recipient of the message.

The implication of this would be that they would be able to front-run any
transaction where the data was visible to them, thereby effectively
"stealing pennies" from each transaction they were able to front-run.

Again: I have absolutely nothing on the content of the allegedly-stolen code
nor can I validate the claim made that Goldman had "special network access."

Nothing. All I have to go on with regards to "market manipulation" (which
such a program would be, writ large!) is the statement of the US Attorney
that I cited in my earlier Ticker.

This may be nothing more than a crazy conspiracy theory put out by someone at Daily Kos. But consider the following:

The last few days the the market has traded "organically." I and many
other market participants have noted that prior to the week before July 4th
the market had been acting "very odd" - normal correlations between interest rate, foreign exchange the the stock markets had been on "tilt" for the previous couple of months, with the amount of "tiltage" increasing
dramatically in the last three or four weeks. In fact, many of my usual
indicators that I use for daytrading had become completely useless.
Suddenly, just before the July 4the weekend, everything started correlating
normally again. I have no explanation for this "light-switch" change but it
aligned almost exactly with the day the NYSE had "computer problems" and
extended trading by 15 minutes. Was there a configuration change made to their networking infrastructure, one asks?

Zerohedge's information, if you believe it, seems to point toward some
sort of distortion. The cite above claims statistically "as likely as an
asteroid hitting earth it is not true" proof of distortion in the market. I
have not analyzed the data to independently validate that conclusion, but
even if the odds of these "effects" in the market being random chance are
only as good as getting hit by a tornado this afternoon......

Every market participant deserves answers on this point. Specifically to
the NYSE and all other markets where colocation connections are made and allowed:

1.. Was it possible for message traffic to be "seen" by computers on your network and colocated into your infrastructure by other than the originator
and recipient? That is, was it physically possible for anyone to "sniff"
messages to and from other market participants.

2.. If it was possible, is it no longer possible, and if so, when was that
change made?

I believe the SEC and FBI must direct a subpoena at all market exchanges for an under-oath answer to question #1. If the answer to that question is
"yes" then every market participant who had or has equipment colocated on
the NYSE infrastructure must be immediately served with a subpoena for a
true and complete copy of all software operating on every machine connected to said infrastructure for immediate forensic investigation to ascertain if any participants were indeed "sniffing" traffic and front-running orders.

The charge made on the pages of Daily Kos is incredibly serious. If this
happened it is a case of literal robbery of every market participant for the
entire duration of the time that the code in question was executing on the
network, with losses to market participants potentially running into the
hundreds of billions of dollars.

Market participants deserve an answer to these questions.

Also see Daily Kos article: http://www.dailykos.com/storyonly/2009/7/7/750786/-Incredibly-Shrinking-Liquidity-as-Goldman-Flushed-Quant-Trading

You might find this interesting, too: http://www.321gold.com/editorials/willie/willie052809.html

Other articles along the same line: http://eldoradogold.net/html/current_interest.html

Also of interest:
Citigroup shakes up top management
http://www.reuters.com/article/wtUSInvestingNews/idUSTRE5684B320090709

NEW YORK (Reuters) - Citigroup Inc on Thursday announced its biggest management shake-up since the financial crisis began, replacing its chief financial officer and installing a new banking chief as it prepares to give the government a 34 percent equity stake.

The revolving door that Citigroup's upper management has become spun again amid intense pressure on Chief Executive Vikram Pandit to improve performance, add consumer banking experience in the senior ranks, and shed toxic or unwanted assets at the third-largest U.S. bank by assets.

"It has been a long time coming," said Christopher Whalen, a managing director at Institutional Risk Analytics in Torrance, California, referring to the management shuffle. "The government controls the bank."

Edward "Ned" Kelly, who became CFO in March and is a former CEO of Maryland's Mercantile Bankshares Corp, was promoted to vice chairman focused on strategy and merger activity.

The new CFO is John Gerspach, the bank's controller and chief accounting officer. Gerspach is the fifth CFO in five years....
_________________
White House Ponders Bernanke's Future
http://online.wsj.com/article/SB124709730991015099.html
______________________
(the above is likely a ruse to make productive citizens (i.e. TAXPAYERS) 'think' the gubmint is cleaning house, but in the end it'll be business as usual, just as it usually is)
The Fed Must Be Stopped
http://www.glennbeck.com/content/articles/article/234/27536/
______________________
Freddie Mac Receives Additional $6.1 Billion From Government
http://www.cnsnews.com/public/Content/Article.aspx?rsrcid=50412

Battered mortgage giant Freddie Mac received $6.1 billion in new funds from the Treasury Department to help offset its mounting liabilities, according to a regulatory filing submitted Wednesday.

The Federal Housing Finance Agency, which has been operating Freddie Mac since last fall, requested the funds for Freddie Mac after the mortgage firm's liabilities exceeded its assets by more than $6 billion, according to the filing with the Securities and Exchange Commission.

After drawing the funds, Freddie Mac has now received $51.7 billion from the Treasury Department and still has access to an additional $149.3 billion to help it finance operations....
_________________
Commercial real estate woes grow
Experts, lawmakers warn of mushrooming crisis in commercial real estate
http://finance.yahoo.com/news/Commercial-real-estate-woes-apf-1032327250.html?x=0&sec=topStories&pos=6&asset=&ccode

* * *

July 12, 2009

Dear President Obama, Attorney General Holder, Trustee Farmer, Mr. Guttman, Ms. Neustadter, Judge Kevin Chang, Judge David Ezra, and All Concerned:

Due to the new discovery of facts that directly relate to this lawsuit which violates my constitutional rights of Free Speech and a Fair Trial, and Federal and State Anti-SLAPP statutes, I am adding the subject Exhibit.

You will find related information online at:

http://www.kycbs.net/GoldmanSachs.htm
http://www.kycbs.net/CV05-00030-Witness-Kurren-Faye.htm
http://www.kycbs.net/CV05-00030-Witness-Paulson-Henry.htm
http://www.kycbs.net/CV05-00030-Witness-Peters-Henry.htm
http://www.kycbs.net/CV05-00030-Witness-Rubin-Robert.htm
http://www.kycbs.net/CV05-00030-Witness-Takabuki-Matsuo.htm

Mr. Farmer and Mr. Guttman, in spite of all this factual evidence (not just "political opinions" or "conspiracy theories" as you have previously alleged), I am again asking that we attempt to reach a global settlement of this matter through confidential negotiation or mediation rather than continuing these costly and seemingly-endless court proceedings.

However, if you and your insurance carriers are still not willing to attempt to negotiate or mediate settlement in these cases, then I ask that you perform your mandated review of these two Exhibits in accordance with Judge Ezra's Order, and advise me, whether or not, you find that they are relevant and if they contain any so-called "protected subject matter".

I respectfully request your immediate reply. If I do not receive a response from you or your insurance carrier within 15 days, I will assume that you have found no "PSM" in these updated pages, and that you will NOT file any objections to my Motion.

Very truly yours,

Bobby N. Harmon, CPCU, ARM

Additional References:
http://www.kycbs.net/
http://www.kycbs.net/Apartheid-Hawaii.htm
http://www.kycbs.net/BH-CHRON-88-96.htm
http://www.kycbs.net/BH-CHRON-97-99.htm
http://www.kycbs.net/BH-Settlement-Chronology.htm
http://www.kycbs.net/Bishop.htm
http://www.kycbs.net/Broken-Trust-Book.htm
http://www.kycbs.net/Confessions.htm
http://www.kycbs.net/CV05-00030-OUST-vs-Harmon.htm
http://www.kycbs.net/Freedom-To-Sing.htm
http://www.kycbs.net/HarmonArbitration.htm
http://www.kycbs.net/JUSTICE.htm
http://www.kycbs.net/Lost-Generations.htm
http://www.kycbs.net/RICO-in-Paradise.htm
http://www.kycbs.net/SLAPP.htm
http://www.kycbs.net/Whistler.htm
http://voy.com/129276/
http://whistlersongs.blogspot.com

http://www.kycbs.net/Exhibit-Goldman-Sachs-Code-Theft.htm

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