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Is there justice for Goldman Sachs?

By Susan Antilla, Special to CNN
August 16, 2012 -- Updated 1300 GMT (2100 HKT)
Goldman CEO Lloyd Blankfein prepares to testify before a Senate subcommittee on Capitol Hill on April 27, 2010.
Goldman CEO Lloyd Blankfein prepares to testify before a Senate subcommittee on Capitol Hill on April 27, 2010.
STORY HIGHLIGHTS
  • Justice Department declined to prosecute Goldman Sachs after Senate investigation
  • Susan Antilla: When Goldman was a victim, prosecutors showed eagerness to act
  • New charges filed last week against ex-Goldman employee who took computer code
  • Antilla: Defendant had served time in prison, federal court had thrown out his conviction

Editor's note: Susan Antilla is a columnist for Bloomberg View and author of "Tales From the Boom-Boom Room: The Landmark Legal Battles That Exposed Wall Street's Shocking Culture of Sexual Harassment." Follow her on Twitter @antillaview.

(CNN) -- C-SPAN isn't the usual place to find violations of the seven dirty words you can't say on television, but April 27, 2010, was an exception.

At an 11-hour hearing of the Senate Permanent Subcommittee on Investigations, Sen. Carl Levin, the Michigan Democrat, culled from a trove of incriminating Goldman Sachs e-mails and let loose with some merciless questions for his Goldman witnesses.

Levin quoted one pre-financial-crisis e-mail -- "Boy that Timberwolf was one sh**ty deal" -- and asked a Goldman executive: "How much of that sh**ty deal did you sell?" Another gem of a question from the senator: "Should Goldman Sachs be trying to sell the sh**ty deal, can you answer that one yes or no?" And so on.

Susan Antilla
Susan Antilla

It was more than great theater, even if the Goldman witnesses did bob and weave at the queries about the scatological reference to the merchandise they were selling. Finally, we had the goods on people from the financial industry: real words written by real Wall Street guys who were yukking it up that clients were dumb enough to buy the garbage stinking up Goldman's portfolios.

That would be some of the same garbage that contributed to the financial crisis we're still recovering from, and in which a long, unindicted list of financial firms and ratings agencies played a part.

Levin's committee kept at it after that hearing, poring through thousands of pages of internal documents from Goldman and other firms. A year later, he and Oklahoma Republican Tom Coburn cranked up the public outrage another notch, releasing the most authoritative analysis yet of the crisis and providing more fodder for the "Isn't someone on Wall Street going to pay for this?" question.

The 640-page "Wall Street and the Financial Crisis: Anatomy of a Financial Collapse" lambasted investment banks for engineering risky financial products and nailed credit-rating agencies for labeling risky securities as safe. The report offered up additional examples of bankers putting in writing what they really thought about the stuff they were unloading on customers. At a Goldman competitor, "pigs" and "crap" were among the depictions.

It was the sort of spectacle that gets people angry. And Levin kept the momentum going. He asked the Justice Department to look into whether Goldman broke the law by misleading clients, and to determine if Lloyd Blankfein, Goldman's CEO, had perjured himself when he testified before Congress.

The prosecutors probed. In a separate case, the Securities and Exchange Commission sent a notice to Goldman that it might bring enforcement proceedings.

And then, last week, the regulatory threat to Goldman was over -- just like that. The Justice Department said Thursday it would not be bringing a case. Goldman disclosed in a regulatory filing the same day that the SEC had ended its probe.

Goldman spokesman Michael DuVally said Goldman was pleased to have the Justice Department matter behind it, but declined to comment further.

There's a high bar set for prosecutors to bring a criminal case, and the Justice Department said in a statement that after an "exhaustive review" of the Levin-Coburn report, the burden of proof couldn't be met.

For the sake of argument, let's give them the benefit of the doubt. These are tough cases. To convict anyone of perjury or of peddling fraudulent securities, the government would have to prove that the people it prosecuted had intended to defraud or lie. And when it comes to financial crimes, prosecutors have been gun-shy since losing a fraud case against two former Bear Stearns hedge fund managers in 2009, or so the story goes.

Still, the Goldman news only added to some very bad optics: The financial crisis seems to be hurting everyone but the people involved in making it happen. The question begging to be answered: Do big banks like Goldman get special treatment when they're the ones being investigated?

Even as the headlines were moving last Thursday about Goldman's good fortune with the Justice Department and the SEC, a 42-year-old computer programmer was being arraigned in a New York state criminal court in Manhattan on charges of unlawful use of secret scientific material and duplication of computer-related material. In plain English, the menacing alleged crime of Sergey Aleynikov is that he copied and transferred some of Goldman's computer code on June 5, 2009, his last day of work at the firm.

It was his second arraignment. In July 2009, after Goldman contacted federal law enforcement officials to say he had stolen its high-frequency trading code, Aleynikov was in handcuffs within 48 hours and charged with violating the Economic Espionage Act and the Interstate Transportation of Stolen Property Act. High-frequency trading is the controversial, computer-run trading by algorithms in which stocks are sometimes held for only seconds. It's been blamed for wild swings in the markets.

Don't get me wrong. Aleynikov shouldn't have done what he did. But the prosecutorial decisions to dump resources into protecting Goldman's high-frequency trading secrets at the same time Goldman was catching a break last week only fuels the notion that some victims get more justice than others.

The government advocated fiercely for Goldman. In advance of a trial, U.S. Attorney Preet Bharara filed a motion in October 2010 that sought to bar Aleynikov from bringing up any of these issues in front of a jury: the financial crisis, the recession, mortgage securities, the taxpayer money Goldman got through the TARP program, Goldman's bonus pool, or any of the civil or regulatory proceedings against the firm. Not that Goldman had done anything wrong, of course.

The jury found Aleynikov guilty of stealing trade secrets on December 11, 2010, and he was sentenced to eight years and one month in prison.

He'd been in federal prison in Fort Dix, New Jersey, for just under a year when the U.S. Circuit Court of Appeals in Manhattan overturned the conviction in February. The court said he hadn't violated the espionage act because his actions didn't involve a product that Goldman was intending to sell or license. And because Aleynikov hadn't assumed physical control of anything, and hadn't deprived Goldman of the code's use, the court overturned the stolen property count.

After Aleynikov's conviction was thrown out and he was freed from his Fort Dix jail cell, lo and behold, the case found a new life.

Manhattan District Attorney Cyrus R. Vance Jr. said last Thursday that his office was now prosecuting Aleynikov for the same actions. "The code is so highly confidential that it is known in the industry as the firm's 'secret sauce,'" Vance said in a press release. "Employees who exploit their access to sensitive information should expect to face criminal prosecution in New York State in appropriate cases." A spokeswoman for Vance said in an e-mail that she had no comment beyond the release.

So now we have the district attorney dumping resources into a fresh attempt at convicting this small fish. But that makes sense, because Aleynikov allegedly hurt a very special victim.

It's been a good week for Goldman Sachs. For the rest of us who wonder who's pulling the levers in the justice system, it's just another expletive-deleted deal.

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The opinions expressed in this commentary are solely those of Susan Antilla.

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