Note that he is still likely to go to prison. He was convicted under two federal laws, and the appeals court disagreed on their use, not his guilt. As he has essentially confessed to criminal copyright infringement and some lesser crimes as a part of the appeals process, the prosecution will most likely charge him under some state laws next. (The state laws have much lower maximum sentences.)
The defense that prop trading source code didn't count as interstate commerce because it was for internal use and therefore didn't fall under applicable federal statues is brilliant. However the defense that this was a digital transfer and therefore didn't count as "goods, wares or merchandise" seems questionable. What really is the difference between me purchasing and downloading a song on iTunes and buying a CD online on amazon.com. Effectively I am doing the same thing in my books. I believe that law should be updated.
It's an interesting turn, because initially the concept of interstate commerce was very broadly defined to include production designated for personal, non-market consumption only, using the argument that the very act of producing it lessened the market for the product.
Just thinking out loud I believe wheat and other similiar commodities are traded across state lines and therefore the personal growth of a commodity can exert a substantial effect on the overall industry which because it is traded across state lines is regulated by the federal government. The source code for proprietary trading is done within the state and all for the in-house use of the firm developing the product so I am not sure if you can transfer the analogy to growth of a commodity such as wheat for personal use. A lawyers opinion would be nice to hear though. I assume because there is no substantial market for source code development of prop trading systems and because it is not traded and sold for use by multiple firms across state lines this wouldn't apply?
It's ironic how even if the HFT are not produced for interstate commerce they do engage in commerce by trading. Goldman might argue that, were their trade secrets lost, they'd have to shut down their HFT, which would negatively effect the economy.
Can you unpack that statement? Is it not true that HFT generally increases market liquidity and decreases volatility? That is, excepting glitches, e.g., the flash crash.
I was actually going to say that, were the HFT algorithms to be released, more firms would participate, and innovation would flourish, which would magnify the positive (or negative) effects of HFT. That's not to say that Goldman should not be allowed to protect its secrets, but the wording of the espionage laws seem to focus on the potential negative effects of espionage on the economy.
Is it not true that HFT generally increases market liquidity and decreases volatility?
That's the conventional wisdom, but it isn't at all clear that there is actually evidence to support it.
eg:
A majority of British asset managers, pension funds and corporate treasurers polled in a UK government-sponsored study are sceptical that “high-frequency” trading provides liquidity to markets.
Taken together, this evidence suggests something important. Far from solving the liquidity problem in situations of stress, HFT firms appear to have added to it. And far from mitigating market stress, HFT appears to have amplified it.
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