* Sergey Aleynikov formally indicted in New York state court
* Aleynikov charged with stealing trading code from Goldman
* Ex-programmer already served prison time in federal case
By Joseph Ax
NEW YORK, Sept 27 (Reuters) - A former Goldman Sachs Group Inc computer programmer indicted on charges of stealing trade secrets has rebuffed a plea offer that would keep him out of prison, his lawyer said on Thursday.
Sergey Aleynikov, 42, was formally indicted Thursday on New York state criminal charges of stealing proprietary trading code from the bank. The indictment is the latest development in a years-long legal battle between Aleynikov and federal and state prosecutors.
Manhattan Assistant District Attorney Joanne Li told Manhattan State Supreme Court Justice Ronald Zweibel that her office had offered Aleynikov a non-jail sentence in exchange for a guilty plea.
Aleynikov's lawyer, Kevin Marino, said his client had rejected the offer. Marino told the judge he would move to dismiss the case based on double jeopardy - prosecution twice for the same offense - and accused state prosecutors of having "no sense of decency."
"The precise factual circumstances that underlie these charges have already been fully adjudicated," he said. "There's nothing remotely lawful or constitutional about what's going on ... He left Russia for freedom and the American way, and he got Franz Kafka and Goldman Sachs."
The Aleynikov prosecution has been closely watched as U.S. authorities are on a push to tackle complex cyber crime, an area of criminal law that has not been well-tested in courts amid debate about which laws apply and what types of conduct can be considered criminal behavior.
Prosecutors have accused Aleynikov, a dual citizen of the United States and Russia, of stealing code used in Goldman's high-frequency trading system in 2009 before leaving to join Teza Technologies LLC, a rival startup in Chicago.
He was arrested in August and charged by New York state prosecutors, six months after the 2nd U.S. Circuit Court of Appeals overturned his 2010 federal conviction on charges tied to the same conduct.
Aleynikov had served nearly one year of an eight-year prison sentence before the appeals court ordered him released. If convicted in state court, Aleynikov could face up to four years in prison.
His conviction was reversed in part because the appeals court said the Justice Department failed to show that the stolen code was intended for "interstate commerce," a necessary element under the federal Economic Espionage Act.
Aleynikov entered a plea of not guilty Thursday to two counts of unlawful use of secret scientific material and one count of unlawful duplication of computer-related material.
Assistant District Attorney Joanne Li said the case does not violate double jeopardy and pointed out that Marino himself appeared to suggest in federal court papers that this type of offense is more properly prosecuted in state court.
Some legal experts have said the state may be able to prosecute Aleynikov because it represents a different jurisdiction and because the state statute underlying his indictment has elements that differ from the federal law.
Earlier this week, Aleynikov sued Goldman in New Jersey federal court for $2.4 million in legal fees, demanding that the bank cover his costs in fighting the federal prosecution. The lawsuit claims Delaware General Corporation Law and the bank's bylaws entitle corporate officers to indemnification when they successfully defend themselves against charges.
Aleynikov will remain free on $35,000 bail. Prosecutors will permit him to travel to Russia for approximately one month to visit his mother, who is undergoing cancer treatment.
The case is People v. Aleynikov, New York State Supreme Court, New York County, No. 60353/2012.