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By Brendan Pierson
NEW YORK, July 6 (Reuters) - A former Goldman Sachs Group Inc programmer on Monday won dismissal of his second criminal conviction, highlighting the difficulty of proving that he committed a crime by copying some of the investment bank's high frequency trading code.
Less than four years after beating a separate federal case, Sergey Aleynikov convinced a state judge to overturn a jury verdict in May. The panel had found Aleynikov guilty of "unlawful use of secret scientific material," a violation of a rarely used 1967 law.
Manhattan Supreme Court Justice Daniel Conviser wrote in his 72-page opinion that, while Aleynikov "doubtless acted wrongly" by copying code from Goldman's servers before he left the investment bank to join a Chicago trading startup in 2009, prosecutors "did not prove he committed this particular obscure crime."
The difficulty of convicting Aleynikov underscores the antiquated nature of criminal law in the area of cybertheft, Conviser said, noting the law which Manhattan District Attorney Cyrus Vance relied on predates modern computer technology by decades.
Vance's office warned that other companies could be at risk if Aleynikov's actions go unpunished and said it was considering an appeal.
"We think this defendant committed a crime," spokeswoman Joan Vollero said. "So did the jury. If what Sergey Aleynikov did isn't a crime, then every company that values its intellectual property should be concerned."
Aleynikov, 45, a dual U.S. and Russian citizen, wrote high-frequency trading code for Goldman Sachs from 2007 to 2009.
High-frequency trading refers to the use of computer technology to trade securities much faster than human traders can. Critics argue that the technology allows the most sophisticated trading firms to manipulate markets unfairly.
Conviser noted that New York's state senate recently passed a bill on theft of computer data that would likely have made what Aleynikov did a crime. But he likened prosecuting Aleynikov under the 48-year-old law with trying to fit a square peg in a round hole.
Aleynikov's attorney Kevin Marino, hailed the decision as "a resounding vindication of the American system of government."
A Goldman Sachs spokesman declined to comment on the decision.
Aleynikov was first arrested by federal officials in 2009 and charged under U.S. corporate espionage law. He was convicted in 2010 and served nearly a year in prison before an appeals court overturned his conviction in 2012.
Just months later, Aleynikov was arrested again and charged in New York state court for copying the code, this time under state laws against unlawful use of secret scientific material and unlawful duplication of computer-related material.
In May the jury convicted Aleynikov of unlawful use of secret scientific material after a two-week trial and more than a week of deliberation. The jurors were not told about the earlier case.
Conviser, in his decision overturning the verdict, said prosecutors failed to prove that Aleynikov made a "tangible reproduction" of the code, or intended to take most of its value, as the law requires.
Marino on Monday characterized the two cases against Aleynikov as abuses of prosecutorial power.
"With today's decision, Sergey Aleynikov has been acquitted of every single crime two sets of prosecutors could conjure in their zeal to do the bidding of Goldman Sachs," he said.
Aleynikov is still pursuing a civil lawsuit to get Goldman Sachs to pay his legal fees, which Marino said are around $7 million, as well as a lawsuit accusing two FBI agents who investigated him of violating his Constitutional rights.
Aleynikov's story helped inspire Michael Lewis' bestselling book "Flash Boys" about the rise and corrosive effects of high-frequency trading in the U.S. equity market.
The case is People v. Aleynikov, New York State Supreme Court, New York County, No. 04447/2012.
Editing by Alden Bentley and Christian Plumb