Two employees of Goldman Sachs Group Inc.'s trading squad were praised in their reviews. One was described as exceptional with an exemplary work ethic, the other as outperforming.
They said the bank urged them to reconsider after they accepted new jobs. After he refused, his manager began to worry about his behavior at Goldman.
Goldman fired the pair from jobs on its program-trading desk because they accessed sensitive computer code without authorization. Goldman suspected, but couldn't prove, that they intended to steal some of the secret sauce behind hundreds of millions of dollars in revenue. A red flag is a notice posted in their employment records.
At their lawyer's office, Lashgari and Paul opened up about their split from one of Wall Street's most elite banks. The way they see it is that they did nothing wrong and the ousting was done to send a message to their old team.
Paul said they didn't take a single line of code.
I've worked hard to establish my career. Lashgari said Goldman wouldn't take that away from him. Goldman was surprised by our resignations. The people I worked with for six years knew what type of person I was.
The messy exit of two employees who made seven-figure salaries from Goldman is a blow to Wall Street. Investment banks are under a lot of pressure to protect their franchises. There are few strategies left that offer an opportunity for outsize hauls, and just about every bank is fighting a tidal current of turnover.
Banks tend to stay quiet about their disagreements with their talent. The trading desk at Goldman makes more revenue per employee than any other desk. Predicting and reacting to changes in the world's biggest stock indexes is what the unit is made of with about 20 people.
It is a business line that has a history of high anxiety over decampments at a bank that spends a lot of money to get a technological edge.
The employees were found to have engaged in serious misconduct, according to the bank, and no one would be retaliated against. They were terminated because they accessed confidential and proprietary firm information without authorization and refused to cooperate with the firm's investigation.
Both sides agreed to use a third-party forensic firm to do their investigations. There was no evidence of data transfer or any communication that would suggest intent to steal data according to a report.
Goldman decided to fire the two vice presidents. They were accused in a database maintained by the Financial Industry Regulatory Authority of improper access to systems and of taking steps to cover their tracks.
The lawyer said that goldman's actions were defamatory. The clients cooperated with the review, according to him. All of our legal options are open.
Goldman has an opportunity due to the rise of passive investing over the last few decades. The methodology for adding or subtracting stocks from an index's roster is publicly laid out. The tweaks cause a wave of buying and selling by passive funds, which have to rebalance portfolios that collectively command trillions of dollars.
Goldman or Millennium Management can position themselves to profit if they develop systems that predict which stocks will be included in their portfolios. The program-trading desk has a key role to play. Similar opportunities can be created by other events. The earlier Goldman guesses right, the better chance it has of success.
Goldman doesn't break out how much it makes from anticipating changes to indexes Wall Street doesn't know much about the franchise's strength. It pulled in at least $700 million in each of the last two years, trouncing banking peers. Senior traders say that the opportunity to make easy money from the niche has waned due to the strategy getting crowded. It is possible that this year will be lean for many.
The hedge funds are Goldman's direct competitors. Capital has been made available as needed and the firm has poured talent and resources into the strategy. Before heading US equity trading for Goldman, Joe Montesano was there. Anne-Victoire Auriault is a partner in the firm.
The group at Goldman still uses the bank's own money without waiting for clients to place orders. Big banks were banned from looking for profits after the financial crisis. In fixed income, banks match sellers with buyers in less liquid markets. If there is a reasonable expectation of near-term demand, the rules allow for such risk-taking. Goldman knows that when an index changes, demand from passive funds increases.
It is a corner of Wall Street where few people understand how to succeed, which makes Goldman particularly protective of its group. The junior members of the bank's team were given six months on top of a notice period when they wanted to leave.
Lashgari said that he was the group's most senior coder, aside from its leader.
Lashgari was a designated code reviewer for the desk. He said the resignations would not have happened if they had reconsidered them.
The bankers and traders who found their way into the heart of Wall Street tend to be either one or both types. The outsiders who arrive with ambition and smarts are the ones who make careers in dealmaking almost inevitable. The biographies of Paul and Lashgari were similar.
Paul was born outside of Haiti's Port-au-Prince in 1993 and grew up in Philadelphia, where his father drove a cab and his mother worked as a nurse. He joined the National Society of Black Engineers after hearing about Goldman. He was struck by the energy and vibe on the trading floors.
Lashgari was born in 1987 in Iran's Kurdistan province and moved to Tehran at the age of 5. He graduated from one of the country's premier schools for gifted students and went on to study electrical engineering at Cornell University.
He joined the program-trading group after working at Goldman.
Investment firms pay more than banks. If a bank assembles a successful trading team, it must protect intellectual property and keep talent from jumping ship. Goldman's protectiveness may be understandable, but sometimes it has led to questions over whether it's too aggressive.
US authorities were enlisted by the bank in 2009, when they believed a computer programmer was making off with source code for high-speed trading. There was a debate over the fairness of his prosecution for a decade. Aleynikov was found guilty on one count of unlawfully using secret scientific material and sentenced to time served after years of battling federal and state charges.
In the midst of that battle, another Goldman program trader, Glen Scheinberg, jumped ship to a hedge fund with three colleagues. One of the most successful index-rebalancing teams is the hedge fund group.
When Paul submitted his resignation, he was warned that Goldman doesn't like it when employees leave in unison.
Some parts of Goldman turned heads in the industry when they denied past compensation awards to executives who left. It looked to take vested stock awards from some defectors at one point.
There are few disclosures in the employment files of Paul and Lashgari. According to a review of the database, only about 70 Goldman brokers have been accused of wrongdoing in the past 10 years. Lashgari and Paul were accused of improper access.
After making hundreds of millions of dollars in profit for Goldman, it would have been nice for them to say thank you and goodbye. Goldman viewed JP's departure as a betrayal of biblical proportions.
Noah Buhayar helped with the project.
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