Flash Boys Chapter 5 - Sergey Aleynikov and Goldman Sachs' Secret Code
This chapter hit me personally. I’m from the former USSR myself. I know people exactly like Sergey Aleynikov. Brilliant programmers who left because the system wouldn’t let them be what they were meant to be. Reading this felt less like a book and more like a story someone told me over tea.
The Guy Who Took Photos of Sausages
Serge was born Jewish in Russia. That fact was stamped on his passport, which meant the government decided what he could study. Math was fine. Computer science was not. He touched his first computer at sixteen, wrote a program that drew a sine wave, and was hooked. But when he asked to switch to computer science, the authorities said no. That was the moment he decided to leave.
He arrived in New York in 1990 with no money and no English. And here’s the detail that got me. He walked into a grocery store and was so shocked by the variety of sausages that he took photos and mailed them to his mother in Moscow.
If you grew up in the USSR, you understand. The stores we had were empty half the time. Twenty kinds of sausage in one place felt like science fiction.
From $8.75 an Hour to Goldman Sachs
Serge’s first job paid $8.75 an hour at a New Jersey medical center. He worked his way up. Rutgers. Internet startups. Then a telecom called IDT, where he spent almost a decade routing millions of phone calls to the cheapest lines. By 2006 he was their star technologist.
A headhunter called. Wall Street wanted people who could make computers fast. Serge said no thanks. A year later the headhunter called again. His company was struggling, his wife was pregnant with kid number three. He agreed to interview at Goldman Sachs.
The Interview
Goldman put him through two days of brain teasers and math problems. A dozen people trying to stump him. The final interview was with a senior trader, another Russian. Two questions.
First: Is 3,599 a prime number? Serge noticed it was close to 3,600. So 3,599 = 59 times 61. Not prime.
Second: A spider on the floor, a fly on the ceiling. Find the shortest walking path. Serge unfolded the room flat and used the Pythagorean theorem. Got the job. Starting pay: $270,000.
More Than Half Were Russian
More than half of Goldman’s programmers were Russian. Serge had a theory about why. In Russia, computer time was measured in minutes. You had to think everything through on paper first, then type it in and hope it worked. Serge still wrote programs on paper before touching a keyboard. That’s a habit I recognize. Limited resources teach you precision.
The Giant Rubber-Band Ball
Goldman’s trading platform was a mess. About 60 million lines of old code, built on a system they’d bought fifteen years earlier. Lewis calls it “a giant rubber-band ball.” When a rubber band popped, Serge had to find and fix it.
He wanted to scrap everything and build from scratch. His bosses said no. If something makes money right now, do it. Long-term rebuilds? Not interested. So Serge spent two years patching the elephant.
The Open Source Problem
To patch that elephant, Goldman used tons of open source software from the Internet. Free code, made by communities of developers who share their work. But Goldman only took. They never gave anything back.
Serge once built a small tool from open source components that wasn’t even used at Goldman. He asked his boss if he could release it back to the community. His boss got tense and said no. It was now Goldman’s property.
At his trial, lawyers showed the same code side by side. The original had an open source license on top. Goldman’s version had that license stripped off and replaced with their own.
“Everyone Lived for the Year-End Number”
The culture at Goldman was competitive and isolating. Everyone focused on their individual bonus. Programmers sat in cubicles and barely talked. At Goldman it was always “something is broken and we’re losing money, fix it now.”
Meanwhile, headhunters knew Serge was one of the top twenty programmers on all of Wall Street. He had no idea.
The Exit and the Arrest
In early 2009, Misha Malyshev offered Serge a job at his new hedge fund, Teza Technologies. Over a million dollars a year. And the chance to build a platform from scratch. That was what sold Serge. Not the money. The engineering challenge.
He resigned. Colleagues came one by one, saying they’d quit too if they had the chance. He stayed six weeks to train people. During that time he emailed himself code files, same as he’d done nearly every week since he started. The files had open source code mixed with Goldman proprietary stuff.
He also deleted his bash history. Which he always did. His password was visible in it. Standard practice for any programmer.
The FBI at Newark Airport
Three men in dark suits were waiting in the Jetway at Newark. FBI. Handcuffs. They wouldn’t tell him the charge at first.
The agent in charge, Michael McSwain, used to be a currency trader, the kind of person whose job had been eliminated by people like Serge. He drove Serge to the FBI building in lower Manhattan, handcuffed him to a wall, and read him his rights.
McSwain didn’t understand the technology. He thought the “subversion repository” (a standard code storage tool) sounded suspicious because of the word “subversion.” He found it damning that the server was in Germany. Serge tried to explain that physical location on the Internet doesn’t matter. McSwain wasn’t interested.
Serge compared it to a Russian children’s game called Broken Phone. The agent was repeating technical words strung together in ways that made no sense.
The Confession at 1:43 AM
Serge waived his right to a lawyer. He figured if he just explained things, the agent would understand and drop it. Five hours of Serge correcting McSwain’s mistakes in the written statement. Computer terms all wrong.
At 1:43 in the morning on July 4th, McSwain sent a one-line email to prosecutors: “Holy crap he signed a confession.”
That “confession,” full of crossed-out phrases rewritten by the agent, was later presented to a jury as evidence of a tricky thief choosing words carefully. Really it was just an agent who didn’t understand what he was writing.
Eight Years Without Parole
Serge was sentenced to eight years in federal prison. No parole.
And here’s the thing Lewis keeps coming back to. After the 2008 crisis, after Goldman helped rig Greek government books, after they designed mortgage securities to fail so they could bet against them, the only Goldman Sachs employee arrested by the FBI was the one Goldman asked them to arrest. A programmer who emailed himself some files.
The prosecutor argued Serge should be denied bail because the code could be used to “manipulate markets in unfair ways.” But Goldman already had that code. They were already using it. So what does that tell you?
My Take
I know guys like Serge. Smart beyond belief. Socially a bit lost. The type who can solve a math puzzle in two minutes but can’t tell when someone is taking advantage of them. He thought if he just explained the truth, everything would be fine. He didn’t understand that truth wasn’t what they were after.
As someone from the former USSR, this story stings. You leave a country that won’t let you study what you love. You come to America. You work your way up from $8.75 an hour. You become one of the best in your field. And the system crushes you anyway. Different country, same result.
The face Lewis put on high-frequency trading turned out to be the face of a guy who just wanted to write good code.
This is part of my chapter-by-chapter retelling of “Flash Boys: A Wall Street Revolt” by Michael Lewis (ISBN: 978-0393244663). I’m retelling the story in my own words with my own thoughts mixed in.
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