Goldman spying suspect no boon to new Chicago firm

Published: 07 Jul 2009 17:27:12 PST

* Two Russian emigres' lives collide in Goldman case

* Aleynikov espionage case a challenge for Malyshev firm

* Malyshev left Citadel in Feb., recently hired Aleynikov

BOSTON/NEW YORK, July 7 - Their paths sound so similar - two Russian emigres with a talent for numbers who arrived in the United States and quickly moved into the rarefied circles of America's top investment firms.

But Mikhail Malyshev may now regret having crossed paths with countryman Sergey Aleynikov, a computer programmer he hired for his start-up firm who is now embroiled in one of the highest profile U.S. corporate espionage cases in years.

Four days ago, federal agents charged Aleynikov, 39, with stealing trade secrets from his former employer, Wall Street bank Goldman Sachs Group Inc. Malyshev's company, Teza Technologies LLC, responded by suspending Aleynikov.

The timing of the case could not be worse for Malyshev, who left hedge fund Citadel Investment Group in February to set up Teza Technologies with two partners, also previously employed at Citadel.

While the FBI has not accused Malyshev and Teza of wrongdoing, such a controversial court case involving one of its first employees could be at the very least a distraction and embarrassment, and could turn into the biggest challenge of Malyshev's career.

As news of the arrest captivates the hedge fund and banking communities, some details are emerging about how the men's careers collided.

Teza's spokesman Guy Chipparoni said Aleynikov was recruited through an outside headhunter, but it is unclear if there was much communication between the two men during the hiring process.

According to the U.S. complaint against Aleynikov, he left Goldman on June 5.

Requests to interview Malyshev were declined. Aleynikov did not return calls seeking comment.

IVY LEAGUE TO WHITE SHOE FIRMS

Former colleagues and a professor who taught him said Malyshev, known by the nickname Misha, is a brilliant mind who easily navigates the most theoretical areas of mathematics but can discuss finance in terms that laymen can understand.

"He was one of our very best students," said Nathaniel Fisch, director of the Program in Plasma Physics at Princeton University who supervised Malyshev's doctoral thesis in 1998.

"He had something extra, partly his ambitiousness and persistence and partly his flair. And he has street smarts."

Shortly after leaving the Ivy League school with a PhD in astrophysics, Malyshev abandoned science for business, accepting a position at McKinsey & Co, the consulting firm often hired by governments, large companies and investors.

In 2003, he was hired for the quantitative trading group of Chicago-based Citadel, one of the world's most aggressive hedge fund firms.

Fisch remarked on his former student's people skills, displayed when Malyshev helped organize reunions for former students.

Hundreds of large pension funds and Wall Street analysts have paid thousands of dollars over the years to hear Malyshev speak at industry conferences. Several said they remember him speaking comfortably about the intricacies of investing.

Three former colleagues, who declined to be identified for this article, remember a different side of Malyshev, calling him an imposing man who kept to himself as others socialized.

They remember his appearance as disheveled in a world where his colleagues wore shirts with cufflinks and crisply pressed slacks.

By a number of accounts, Malyshev's career was in high gear at Citadel's quantitative group, which posted a roughly 40 percent gain last year even as the firm's billionaire-founder Kenneth Griffin's flagship funds were off about 50 percent.

As a senior executive, Malyshev helped oversee roughly $1 billion in assets in the business unit run by James Yeh.

By early 2009, though, the relationship between Citadel and Malyshev crested and in February he left with a number of associates to set up Teza. Malyshev had a nine-month non-compete clause.

Teza has an office in Chicago, but when a reporter visited on Tuesday it was void of furniture and had no receptionist.

COMPUTER NICHE

Although Aleynikov does not have the same U.S. educational pedigree as Teza's Ivy League-educated partners Malyshev, Jace Kohlmeier and Matthew Hinerfeld, he studied at the elite Moscow Institute of Transportation Engineering. But he left before earning a degree.

Aleynikov, who is married with three children, found a niche in computer programming as a teenager in Moscow, where he worked as an application programmer at the Railroad Consolidated Computer Center, according to his profile on networking site LinkedIn.com.

"He was really a good student," remembered fellow student Ayrat Baykov, who is now a software developer in Michigan. The two have not spoken in about two decades but Baykov recalled Aleynikov's quiet yet inviting personality and sense of humor. "I hope he gets out of this trouble," he said.

Aleynikov, who has dual citizenship in the United States and Russia, used contacts he met on the Internet to help him unravel complicated coding problems, posting messages with other programmers in online forums.

He refined his computer skills over two decades, first working with hospitals and universities, and later with IDT Corp before moving to Goldman Sachs in 2007.

Goldman Sachs, a premier Wall Street firm that spends billions of dollars on state-of-the-art technology and talent, is an attention grabber on a resume.