[BreachExchange] Goldman Sachs Wins Fight Over Ex-Programmer’s Legal Fees

[Audrey McNeil]

http://www.bloomberg.com/news/articles/2016-07-13/former-goldman-sachs-programmer-loses-fight-over-legal-fees

Goldman Sachs Group Inc. isn’t required to cover the legal fees of a former
programmer accused of stealing the investment bank’s computer-trading code
simply because he held a vice president’s title, a judge said.

Delaware Chancery Court Judge Travis Laster Wednesday rejected Sergey
Aleynikov’s claims the vice president’s title made him a corporate officer
and entitled him to coverage for legal costs under the company’s bylaws.
Aleynikov’s demand that the bank pick up the tab for fees tied to theft
charges over the code wasn’t legitimate, Laster concluded.

Aleynikov may now have to pay his own fees stemming from criminal charges
and lawsuits in New Jersey over the trading codes, estimated to total about
$7 million, including about $550,000 at issue in Delaware. Aleynikov’s
federal theft conviction was overturned in 2012. Three years later, a judge
threw out state-court charges that he pilfered the bank’s intellectual
property. Prosecutors are appealing.

The programmer failed to prove that an employee who held “the bare title of
vice president,” but didn’t have any managerial responsibilities,
“qualified as an officer for the purposes” of recouping legal fees, Laster
concluded in a 17-page ruling.

Goldman officials were pleased with the decision, Michael DuVally, the
bank’s spokesman, said in an e-mailed statement. Kevin Marino, Aleynikov’s
lawyer, said the decision “raises a host of interesting issues” and his
defense team intends to press forward with the reimbursement claims.

Goldman Sachs argued Aleynikov, whose saga helped inspire Michael Lewis’s
book“Flash Boys,” was a VP in name only and wasn’t entitled to perks set
aside for true corporate officers, such as covering lawyers’ bills.
Aleynikov’s attorneys countered that corporate titles carry their own
weight and must be honored.

Code Transferred

Aleynikov, a Russian immigrant, was a VP at Goldman Sachs until leaving to
join Teza Technologies LLC in 2009 and was arrested later that year. His
lawyers argued the programmer didn’t pilfer the intellectual property while
transferring so-called open source code to a personal e-mail account.

The investment bank acknowledged in court filings it sometimes paid legal
fees for a “broad array of employees,” including positions below the vice
president’s level. Still, Goldman’s lawyers said getting tapped as a vice
president didn’t automatically make an executive an officer under the
bank’s bylaws, which gives managers wide latitude in deciding whose legal
bills to cover.

Goldman Sachs had paid the legal fees of 51 of 53 employees who requested
it, including 15 who were vice presidents, Aleynikov’s lawyers countered in
court documents. Among them was Fabrice Tourre, an ex-vice president
nicknamed “Fabulous Fab” who was found liable in 2013 for defrauding
investors in deals involving mortgage-backed securities.

While only about $550,000 in legal fees and the question of officer status
were at stake in the Delaware proceeding, Laster’s ruling may affect the
outcome of Aleynikov’s lawsuit in New Jersey, where he sought fees after
being cleared of federal charges.

Ruling Overturned

A judge there ordered Goldman Sachs to pay $2.3 million in Aleynikov’s
legal bills, a ruling later overturned by the U.S. Court of Appeals in
Philadelphia that said ambiguity in the firm’s bylaws must be decided under
the law in Delaware, where the bank is incorporated. Goldman Sachs
countersued in New Jersey, claiming Aleynikov breached his duty by
“misappropriating” code.

The Delaware case is Aleynikov v. Goldman Sachs Group Inc., CA10636,
Delaware Chancery Court (Wilmington). The New Jersey case is Aleynikov v.
Goldman Sachs Group, 15-cv-2057, U.S. District Court for the District of
New Jersey (Newark).
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