I read an earlier version of this story when it first came out (so my info may be out of date) but I think the potential manipulation is that if another party had a copy of Goldman's software they could anticipate Goldman's trades and so take positions to profit from them.

I don't think the government claims that Goldman using the software constitutes manipulation.

A bizarre piece indeed.

And what the heck was the guy thinking talking to the cops and waiving his 5th Amendment rights? If there was anything to be learned from the Martha Stewart case, it was, no matter how innocent you might believe yourself to be, never talk to the cops. And never EVER talk to the feds.

Erik L wrote, ...but I think the potential manipulation is that if another party had a copy of Goldman's software they could anticipate Goldman's trades and so take positions to profit from them.

That's not what I gleaned from early coverage, which is that Goldman can and probably is front-running on the exchange.

None of this is really clear, though.

Kind of like in the wake of Enron's collapse, nearly every main-stream-media article was written from the viewpoint that the only fraud in the special-purpose entities was that outsiders hadn't really put up 3% of the capital, and nearly none of them recognized that they would have been frauds even if outsiders had put up 30%, and that they should have been expressing equal outrage that accountants were permitting companies (not just Enron) to claim that finding an outsider to take on 3% of the risk entitled them to take such entities off their balance sheets.

this software is for their 30 millisecond advantage. All it does is manipulate stock prices, that's what it's for.
remember high-speed trading?

High Frequency Trading Is A Scam
http://market-ticker.denninger.net/archives/1259-High-Frequency-Trading-Is-A-Scam.html

Well I am with liberal. The early reporting on this software theft was coincident with the reporting that Goldman-Sachs had emerged from the financial crash with some stunningly better profits than most of its rivals. Take this article from Bloomberg on July 14.
http://www.bloomberg.com/apps/news?pid=20601087&sid=a2jo3RK2_Aps

Goldman Sachs Group Inc. posted record earnings as revenue from trading and stock underwriting reached all-time highs less than a year after the firm took $10 billion in U.S. rescue funds.

Second-quarter net income was $3.44 billion, or $4.93 a share, the New York-based bank said today in a statement. That surpassed the $3.65 per-share average estimate of 22 analysts surveyed by Bloomberg and was 65 percent higher than last year’s second quarter.

Chief Executive Officer Lloyd Blankfein, after repaying the government’s bailout money along with $426 million in dividends to taxpayers, is reverting to a business model analysts deemed irretrievably broken during the global credit crisis. While rivals including Morgan Stanley have pared risks, Goldman Sachs has increased them this year. Not everyone was shy in suggesting that those "increased" risks were mitigated by this propietary software that allowed G-S to front-run trading. But the non-bashful people seemed to be confined to the blogosphere and never seemed to see the light of day at the WSJ, the WaPo or Bloomberg. Even the article linked doesn't hint at the reality that darue and others here see so clearly.

Goldman-Sachs is suing because an employee stole their theft machine. It seems to be as simple as that.

Stupid HTML or maybe stupid Bruce. The blockquote should have closed between "increased them this Year." and "Not everyone was shy".

Well, it does say "unfairly manipulate", not "illegally manipulate". Someone tell the SEC. I'm sure it will be news to them. Sorry, feeling a bit cynical today

Erik L said: ..."I don't think the government claims that Goldman using the software constitutes manipulation."

Dean Baker says the NYT says the federal prosecutor says the software can be used to "...'manipulate' stock prices." I don't know who the various levels of quotation marks should be attributed to.

I read somewhere (drat that source amnesia) that GS has hardware physically located at NYSE that, due to this proximity, can see and execute electronic trade events some milliseconds more quickly than most other peoples' hardware. Given such an advantage, it doesn't seem that it would be too hard to write programs to spot potential trades, jump in between the parties and make a few cents acting as a middle man. You could spin this a "providing liquidity," or something like that, when you intermediate in trades between parties whose buy and sell prices don't quite overlap. Such spin would be less compelling, however, were you to jump in between parties whose offers do overlap.

the article mentioned that the defendant, Sergey Aleynikov, was making $400,000 at goldman and moved to a new position paying $1.3 million. Later, the article quotes Sabrina Shroff, who is a public defendant representing Aleynikov.

Why is this guy, a former goldman VP, using a public defendant???

@Bobby R.

Correct. It's called co-location and NYSE gets a nice fee for letting the big-boys keeping their servers on premises so they can see market action before everyone else. Anyone who thinks "the market" is level is a fool.

Will Obama do anything about such unfairness? No that would be change you can't believe in.

Bobby R.,

this time at least I got my quotation marks right. The whole quote was taken from the article, while the words "unfairly manipulate" were a direct quote from the prosecutor (or at least presented as such by the NYT).

One point not noticed: the FBI arrested the gentleman several days after the theft. That is a remaarkably short period for the FBI, which usually acts only after months and months have elapsed. Government Sachs?

From the transcript of his bail hearing. The prosecution explains: "because of the way this software interfaces with the various markets and exchanges, the bank has raised a possibility that there is a danger that somebody who knew how to use this program could use it to manipulate markets in unfair ways."

Such spin would be less compelling, however, were you to jump in between parties whose offers do overlap.