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Goldman must pay legal fees for ex-programmer accused of theft

A trader works at the Goldman Sachs stall on the floor of the New York Stock Exchange, April 16, 2012. REUTERS/Brendan McDermid
A trader works at the Goldman Sachs stall on the floor of the New York Stock Exchange, April 16, 2012. REUTERS/Brendan McDermid

By Joseph Ax

NEW YORK (Reuters) - Goldman Sachs Group Inc must pay some legal fees incurred by a former computer programmer accused of stealing code from the bank because his title of vice president made him a bank officer at the time, a New Jersey federal judge ruled Tuesday.

In the latest twist in an unusual white-collar criminal case, U.S. District Judge Kevin McNulty ordered the bank to pay for Sergey Aleynikov's defense against state charges, which has cost $700,000 thus far, according to his lawyer, Kevin Marino.

However, McNulty postponed a decision on whether Goldman must also pay for the money Aleynikov spent defending himself against previous federal charges, as well as costs incurred in fighting the bank over the legal-fee dispute. Those fees exceed $3.3 million, Marino said.

A Goldman spokesman declined to comment.

Federal prosecutors first charged Aleynikov in 2009 with stealing code as he prepared to join a high-frequency startup firm in Chicago. He was convicted by a jury in 2010, but a federal appeals court overturned the verdict in February 2012, saying federal corporate espionage laws did not apply to his alleged actions, and freed him after nearly a year in prison.

Manhattan District Attorney Cyrus Vance then brought state felony charges against Aleynikov. A Manhattan state judge denied Aleynikov's bid to dismiss the case because of double jeopardy, finding that the federal and state charges were different even though the underlying allegations were the same.

In his 34-page ruling, McNulty said Goldman's own by-laws require the bank to pay legal fees for any "officer" named as a civil or criminal defendant in connection with their role at the bank. The question, he said, was whether a "vice president" should be considered an officer.

Goldman argued that vice presidents are frequently mid-level employees without the kind of managerial responsibility typically associated with an officer.

But McNulty said the bank's by-laws failed to define clearly who is entitled to legal fees, leaving him to rely on the "uncontroversial" notion that vice presidents are officers.

"Goldman might easily have chosen to be more sparing with job titles, or to confer them in some other way," he wrote. "It might have easily drafted its by-laws to restrict indemnification to a well-defined class. It did not."

The judge said he understood that Goldman, the alleged victim, might find it "galling" to pay for Aleynikov's defense. But he noted that Goldman has paid the legal costs for 51 of the 53 employees who have sought coverage in recent years.

That tally includes Fabrice Tourre, a former vice president found liable for securities fraud after a civil trial this year, and former director Rajat Gupta, convicted of insider trading.

If Aleynikov is convicted of the state charges, the bank could attempt to claw back his defense fees.

The case is Aleynikov v. The Goldman Sachs Group, U.S. District Court for New Jersey, No. 12-5994.

(Reporting by Joseph Ax; Editing by Richard Chang)