Fed to release secret bank crisis data

THE US Federal Reserve board says it is preparing to release sensitive emergency lending data from the peak of the 2008 financial crisis after the Supreme Court rejected a bid by major banks to keep the information secret.

The justices, in a short written order, left in place a 2010 federal appeals court decision that ordered the Fed to identify commercial banks that received emergency loans from the central bank during the crisis.

Shortly after the announcement, a Fed spokesman said the central bank would release the information, but didn’t provide a timeframe.

“The board will fully comply with the court’s decisions and is preparing to make the information available in accordance with the court’s actions,” the spokesman said.

An earlier court order in the case gave the Fed five business days to release the information. That order was stayed while the case was on appeal.

Following the central bank’s controversial use of taxpayers’ money to fight the financial crisis, the Fed last December disclosed details of trillions of dollars in loans made to financial firms, companies and foreign central banks to comply with the Dodd-Frank financial law.

But it didn’t detail which banks borrowed from the central bank’s discount window, a short-term lending program for banks facing liquidity issues.

The Clearing House Association, a trade group representing large banks, had warned that releasing the borrowing data would allow the public to draw inferences “whether justified or not” about the banks’ current financial conditions.

The Supreme Court, without comment, refused to consider the group’s appeal.

At issue was a Freedom of Information Act lawsuit by Bloomberg News that sought details about bank borrowing from the Fed’s discount window. Bloomberg also sought borrowing details on other Fed emergency lending programs.

Like the banks, the Fed had fought vigorously against disclosing the data, but it gave up the legal fight after losing at the New York-based 2nd US Circuit Court of Appeals last year. The Clearing House group said the US solicitor general, the government’s lawyer at the high court, didn’t let the Fed file an appeal to the Supreme Court.

Matthew Winkler, editor-in-chief of Bloomberg News, said that the Fed “forgot that it is the central bank for the people of the United States and not a private academy where decisions of great importance may be withheld from public scrutiny”. The central bank “must be accountable to Congress, especially in disclosing what it does with the people’s money,” Mr Winkler said.

Fox Business Network later filed a lawsuit similar to Bloomberg’s. Fox News is a unit of News Corporation, which also owns The Australian and Dow Jones Newswires.

Steven Mintz, outside legal counsel for Fox Business, said the network was already making arrangements with the Fed to have the information produced.
Mr Mintz said he expected the release of the information within five to 10 days.

“It’s about time this case is going to be finally resolved in favour of the American public receiving additional information,” he said.

Fed lending-disclosure requirements have changed since the litigation began.

Last year’s Dodd-Frank law now requires the Fed to disclose the identities and details of banks that borrow from the central bank’s discount window, but the data will remain secret for about two years after the borrowing takes place.

The Fed and the banking industry have said it is important to keep the information secret for fear that banks wouldn’t come to the central bank for emergency lending if the discount-window data were disclosed immediately because of the market stigma associated with such a request.

The court case doesn’t affect the Dodd-Frank requirements.

“We are disappointed that the Court has declined our petitions, which deal with the protection of highly confidential bank information provided to the Federal Reserve,” the Clearing House Association said.

But the group added it is satisfied with the Dodd-Frank provision, which it said makes sure the data won’t be “disclosed prematurely to the detriment of our financial system”.

Secret to Virgin’s success: say no to Dr Yes

ON Stephen Murphy's desk at the offices of Virgin Group on the Cours de Rive in Geneva sits a very special coffee cup.

It was a present from the group’s founder and his boss for nearly two decades, Richard Branson.

And it is decorated with a photo of Branson pulling open his shirt in a Clarke Kent-type pose.

But beneath there is no “S” for Superman, as might be appropriate for the world’s most famous billionaire entrepreneur. Instead there is a simple message.

“It has a picture of him on it pulling open his shirt to reveal the words: ‘Doctor Yes wins over Mr No’,” a grinning Murphy tells The Australian in an interview at Virgin’s Sydney offices during his annual trip to Australia.

In the Virgin world, Branson is known as “Doctor Yes”.

And Murphy, his right-hand man and global chief executive for the past five years, is known as “Mr No”.

“I say ‘no’ to him all the time,” Murphy says proudly. But rarely, if ever, does the billionaire take offence. And there are times when he simply ignores it.

“He is very respectful. Even if he has decided to do something against your advice, he will call you up to explain why,” Murphy says.

“He is a listener. He will say ‘I hired you to listen to you. I am not hiring you to tell you what to do’.”

And therein lies part of the success of their relationship, and ultimately the global Virgin empire.

Virgin has long prided itself on its “win some, lose some” attitude.

Since being founded by Branson in 1970 as a mail-order record store, it has fostered a culture of entrepreneurship embodied in Branson’s famous “Screw it, let’s do it” mantra.

Today, Virgin Group has a net worth estimated at $US5 billion and boasts annual turnover in excess of $US20bn with operations in the aviation, telephony, healthcare, leisure, financial services and renewable energy sectors.

But under Murphy, a British-born former accountant at both Mars and Unilever who became chief executive in 2005, when Branson stepped back from day-to-day control, Virgin has moved in a new direction. There is now a formal structure for its divisions, with six divisional heads replacing the old seven-member investment advisory committee.

Last month, a powerful new advisory board was appointed to add further discipline to the group’s investments.

Next week, its members will all meet with Branson, some for the first time, at his Necker Island resort in the British Virgin islands in the Caribbean.

The new board will also provide advice on economic issues and strategy to the Virgin Group board headed by Peter Norris, who was named as the first ever non-executive chairman in November last year.

The new advisory board is chaired by Claudio Costamagna, the former head of Goldman Sachs investment banking business in Europe and a current non-executive director on the Virgin Group board.

It also includes former US utility boss Bill Morrow; a former British government minister, Baroness Morgan; a former chief executive of Cadbury, Todd Stitzer; and the former chief executive and chairman of Glaxo Wellcome, Richard Sykes.

“We are unique as a brand in terms of the diversity of industries that we apply the brand to,” Murphy says.

“So it is great to get a group of people who have broad experience, especially as some of the business areas we want to move into are outside the historical competencies of the group, like aviation and telecommunications,” Murphy adds.

He first met Branson in 1993.

What was supposed to be a 10-minute job interview at Branson’s London home turned into a chat that lasted an hour and 40 minutes and Murphy left with a job offer.

“I thought I was going to meet somebody who was going to do all the talk and tell me what he thought,” he says.

“But he didn’t do any talking. He said: ‘Tell me what you think’.”

“I said to him, ‘What is your strategy?’, and he said, ‘Well, I haven’t really got one.’ So I thought, ‘Well, that is fascinating’. It was very exciting.”

In the decade that followed (Murphy quit Virgin eight years ago to try his luck as an entrepreneur, but returned a year later and was welcomed with open arms) he went back to the house for many meetings.

Often there would be 10 people in the room and Branson would be the last one to speak.

“And at the end of it he would often say ‘I don’t know’. Or he’d say ‘Let me think about it’. Or he’d make a decision But it was very collective. You felt respected.

“He believes a lot of business comes down to experience and judgments, so he wants to talk to you so that he can weigh up the quality of your advice.”

They are traits the 54-year-old has inherited from his boss.

“Stephen is a very good listener and he has been great at getting a team around him,” Branson tells The Australian.

Each year, Murphy runs a raffle for staff in each part of the world. The winners get to have lunch with him. The most recent was for a dozen local Virgin employees at Cafe Sydney late last month.

“As the CEO of a globally diverse entrepreneurial group with one of the world’s iconic brand names, Stephen is a great thinker and listener who is also very accessible,” says former Transurban chairman David Ryan, who is a director of the financial services venture Virgin Money in Australia and a former board member of the airline Virgin Blue.

“All in all he is a high-quality CEO and person.”

Importantly for Branson, Murphy frees up the billionaire to do what he does best. The founder says he hasn’t attended a Virgin Group board meeting for 25 years.

“He leaves me to be entrepreneurial and come up with entrepreneurial ideas for the business,” Branson says.

And then there’s that other important trait. “We are good personal friends, but one of his skills is knowing when to say ‘no’ to me,” Branson says.

But true to his accounting pedigree, Murphy does know where to make a buck.

In recent years, Virgin has added health and renewables to the group’s portfolio of travel, media and leisure companies.

The profits of Virgin Atlantic and Virgin Trains are now channelled into developing biofuels and investing in solar panels and other alternative energy projects.

And Virgin Active, the international gym and fitness club chain, has become one of the group’s prime growth engines.

While it represents less than 10 per cent of group revenues, it was the one jewel in the empire deemed to have the growth profile to justify a pound stg. 1bn listing on the London Stock Exchange earlier this year.

It was a bold move for Branson given his bleak experience with the sharemarket in 1987, when Virgin Group was briefly publicly listed before being re-privatised.

But the sale story for Virgin Active was clear.

“If we are going to list the businesses, they have to be clear business models that the market is going to understand and with the kind of stability of performance and earnings that the market likes,” Murphy says.

“Health and wellness is a big strategic area of interest to us because we think it is a big, growing industry.

“In first-world countries there is the demographic trend that is making health and wellness a huge issue for people and a huge part of their lives. It is something they are prepared to devote spending power to.”

But, as in 2007 when a float of the business was first mooted, the timing was less than ideal. “Goldman were appointed but I just felt the valuations we were getting just didn’t reflect the strategic value of the business,” Murphy says. So the float was put off.

The idea remains on the agenda, to generate cash to expand Active or other businesses and to provide scrip currency for other deals.

Over time, Branson’s big cash injections for new ventures have come from spinning off successful companies such as Virgin Blue in Australia, Virgin Mobile UK and Virgin Mobile USA.

While Virgin Active remains small in Australia, with a club in Sydney and Melbourne and a third just about to open in the former’s CBD, Murphy has big plans.

Virgin wants to open 40 to 50 clubs in Australia over the next decade to add to the group’s large presence in Britain, Italy, Spain, Portugal and South Africa.

“Fitness and health is a big part of Aussie lifestyle. What we are in is a lifestyle business and the robustness of the business model is much greater than we thought,” he says, noting the profitability of Virgin Active actually increased during the global financial crisis.

The other big levers for growth in Australia are Virgin Money and Virgin Blue. In July, Virgin Money was relaunched to offer credit card and online banking products in association with US banking giant Citibank.

In aviation, Murphy concedes that Virgin Blue lost its way in the final years of former chief executive Brett Godfrey’s reign, when it was squeezed between the low-end offerings of Tiger Airways, Jetstar and the high-end premium brand of Qantas.

“That’s a fair comment,” he says.

He also acknowledges the timing of the launch of its V Australia international service just before the GFC was “not ideal” (most would say it was disastrous).

But he is optimistic about the future.

“Time will tell. If we are successful in getting a deal with Delta (a trans-Atlantic alliance that has been blocked by the US Department of Transportation), we think it will be a great step forward for long-haul travel here. I think we will have very viable business that will give people access to a good alternative,” he says.

Murphy is excited about the hiring earlier this year of veteran Qantas executive John Borghetti to run Virgin Blue.

He long admired Borghetti as part of the three-member team at Qantas — with chief executive Geoff Dixon and chief financial officer Peter Gregg — that helped the carrier dominate global aviation.

“I met John quite a while ago and John is very articulate on a vision and what he thinks is possible. He is a terrifically skilled operator,” Murphy says.

And while he still regards Qantas as one of the most powerful incumbents in global aviation, he believes it is now more vulnerable. And like his boss, he cannot resist a dig at his rival.

“The dalliance with British Airways, what was all that about? Given the geographic spread, we think there are no synergies in that deal that aren’t already in the US. So we think there has been a bit of dicking around there, to be frank.”

Not that Murphy and Virgin haven’t made mistakes. The biggest was in 1994, when Branson overruled his advisory committee to launch Virgin Cola, taking on the world’s best-known brand at its own game. He lost.

“That was not a success because we couldn’t get the fundamental differentiation and core brand values into the product,” Murphy says.

“So let’s not move into industries where we can’t get the fundamental values that stand behind Virgin — like innovation, value for money, customer service — into the product. If we don’t see them in the product, the consumers aren’t going to see them in the product.”

Then he can proudly point to some great saves, such as when Virgin looked at getting into Indian aviation in 2003.

It looked like the opportunity of a lifetime, championed by Branson. Until Murphy and his team realised how many new carriers were about to enter the Indian market — about 10 times the forecast demand.

“We said to Richard, ‘This is going to be an absolute train smash’. And he said, ‘You are right.’ We went to Airbus and said ‘How many planes have you sold in India?’ and they said 300.

“We were very close to going with one carrier.

“But we stopped it.”

And then there have been the occasions when Mr No and his team have been overruled by Branson. And they were proved wrong.

Like the launch of Virgin Mobile USA in 2000.

“We said to Richard we were really not sure about the probability of success. And Richard called me and said ‘I think it is a unique opportunity — if we don’t do it now, we will never do it. Yes, I understand it is a risk. I know it is a very large single investment.’ “

The investment team had a standard success probability benchmark of 80 per cent. On this test, US mobiles failed dismally. But it didn’t matter.

“Richard said, ‘I appreciate it is probably not going to meet that criteria but if we don’t do it now, we never will.’ And it turned out that it did work,” Murphy says.

“When there are nine good reasons not to do something, Richard is always the person who focuses on the one reason to do it.”

Being based in Geneva, between Virgin’s core European and US businesses, Murphy works long hours, dealing with European affairs during the day and taking phone calls from the US in the evening. But it is never boring.

“And it is always going to be challenging because I am going to trot out the nine reasons. But he is going to go, ‘But . . . ‘ “.

While he still speaks to Branson every second day, he admits to not having taken up the entrepreneur’s penchant for sketching ideas on his hand (where the idea for Virgin originally started), napkins or beer coasters (where Godfrey famously sketched the idea for Virgin Blue).

“I have copied his habit of writing down things when I come out of meetings and not forgetting them. (But) I don’t think I am a great user of napkins,” he says with a chuckle.

Now Branson’s next big thing is space. He has been trying to launch Virgin Galactic for two decades, having registered the name in 1990, and is now planning to begin suborbital space flights late next year or in 2012.

It was from his space dream that Branson acquired his famous nickname.

“Most of our board members were not that enamoured with the idea of us going into space,” he said in a newspaper interview in 2004.

“There was one memo that got sent to me by mistake, which was an email between two board members . . . they’d given me a new nickname, which was Dr Yes (to everything).”

Virgin Galactic’s first spaceship, named VSS Enterprise, and its carrier aircraft, the White Knight Two, were in New Mexico late last month for a dedication of the runway at a commercial spaceport that will become Virgin Galactic’s home base.

The company has reportedly taken $US50 million in deposits for its first flights.

But don’t expect Murphy to be joining Branson on the first flight. Or any, for that matter.

Asked about his space ambitions, his answer is clear and simple. And appropriate.

“No,” he says with smile.

“I am Mr No.”

Secret bank merger bid

NATIONAL Australia Bank and ANZ sought to bring down the four pillars policy through a bold merger in 2008 that preceded the depths of the global financial crisis.

Talks between the Melbourne-based institutions were conducted for several months in the first half of 2008, but efforts to win support from the Rudd government for the controversial move failed.

The Australian has confirmed with several senior sources on both sides of the aborted negotiations that the talks took place.

Under the plan, NAB chairman Michael Chaney would have assumed the role as head of the board at the merged entity.

ANZ chief Mike Smith would have kept that position, most notably because at that time NAB had yet to appoint a successor to former chief executive John Stewart.

According to one well-placed participant, there were “significant social synergies” in the deal given that then ANZ chairman Charlie Goode was due to step down and Mr Stewart’s replacement as NAB boss had yet to be finalised.

The push intensified following Westpac Banking Corporation’s shock announcement on May 13, 2008 that it would buy NSW regional rival St George Bank for close to $17 billion.

But furious closed door lobbying in Canberra over a period of months made it clear there was little political appetite to accept a rationalisation of the banking sector on such a grand scale.

The situation reached an inflection point at what was seen at the time as a surprise, if not curiously timed, statement by Wayne Swan on June 2 prior to heading to a meeting of Organisation for Economic Co-operation and Development finance ministers in Paris.

In that statement, the Treasurer emphatically restated Labor support for the four pillars policy and soon after gave the House of Representatives Economics Committee the task of “identifying any barriers that may impact on competition in the retail banking and non-banking sectors”.

“The government considers that Australia is best served by a stable banking system that can continue to draw on the strength and risk management skills of four major banks, rather than a lesser number,” Mr Swan said.

There was no public trigger for Mr Swan’s declaration and many commentators read it as being a response to the Westpac-St George tie-up. It is now clear that the statement was fashioned as what one player described as “a direct shot across the bows of NAB and ANZ”.

The parties persisted pushing the deal with the Prime Minister and Treasury, even after Mr Swan’s statement, but it became more apparent that it was a futile exercise. “Within weeks our efforts and hopes were dead and buried. Swan had made it very clear that he was entirely opposed to the deal. We packed up our bags and moved on,” said one source close to the transaction.

Having deliberately held back in anointing a replacement for Mr Stewart as it toyed with an ANZ tie-up, the NAB board then moved to address its leadership uncertainty and announced Cameron Clyne as CEO within two months, on July 31.

Knowledge of the talks was kept tightly held at board level and the senior ranks within each institution. So too the corporate advisers mandated to execute a merger agreement.

On the NAB side were Gresham Partners and Goldman Sachs JBWere, while a combination of JPMorgan and Lazard had been appointed by ANZ to represent them in the discussions.

Even within those firms the knowledge was — and still is — restricted to fewer than a handful of executives, such was the sensitivity around the plans.

Spokesmen for NAB and ANZ last night declined to comment.

The talks held various project names but were also jokingly and privately dubbed by some as “two stumps”. This was a reference to the widely held view within both banks that the enormous size disparity between Commonwealth Bank of Australia and Westpac on the one side, and their Melbourne counterparts on the other, had turned the four pillars into “two pillars and two stumps”.

“The pitch to the politicians was that you had two pillars and a couple of stumps. So support this merger and move to three majors and use your efforts to help the regionals and second-tier players survive and be viable competitors,” says an adviser.

The market capitalisations on the Australian stock exchange at the time were far different, with a substantial gap between Sydney and Melbourne banks, which has since contracted with NAB at $53bn, ANZ $57bn, Westpac $68bn and CBA at $80bn.

A driving force in the discussions was ANZ’s Mr Smith who, still relatively new to the Australian financial landscape, wished to retest the four pillars proposition. “It took Mike awhile to get a dose of political reality. You can see at the time of the talks he was making strident comments about how dumb the four pillars policy was. He’s now adopted a more realistic public stance,” said a senior executive at one of the banks.

The move to test the four pillars policy would have been ANZ’s second known attempt to dramatically rationalise and consolidate the industry.

The policy was formulated by Paul Keating in May 1990 to block a proposed merger between the insurer National Mutual and ANZ.

The original policy was “six pillars” because it covered the four major retail banks and the insurers National Mutual and AMP. In 1997, then treasurer Peter Costello acted on the Wallis inquiry’s report into the Australian financial system, which recommended the pillars be stripped back to cover only the four banks. The change allowed French insurer Axa to purchase National Mutual.

However, the policy has tested the patience of the four major banks, which have argued, along with the Australian Bankers Association, that it limits competition and natural growth for the institutions.

However, Labor has committed to four pillars on a number of occasions, with Mr Swan campaigning at the 2007 election that Labor would not alter the policy.

To counter this position and win political backing, the deal teams at both banks had begun formulating a suite of costly concessions. These were mooted to have included commitments to limit branch rationalisation and job losses, as well as other pro-consumer product initiatives. These were understood to include a radical slashing and elimination of contentious product fees.

“I actually think the government has missed yet another opportunity to pull out a huge social benefit. We warned them what was going to happen with other regionals and second tier banks like Bankwest (bought later by CBA), which is exactly what subsequently happened,” one insider told The Australian.

“I honestly think that allowing the merger, on the basis of the concessions both parties were willing to offer, would have done much more for competition and consumers in the long run . . . than knocking it back without any detailed consideration.”

ANZ is now firmly focused on expansion into Asia and is favourite to purchase a 46 per cent stake in Panin Bank of Indonesia for about $1.4bn. NAB is seeking to lock down its purchase of the Australian unit of Axa Asia Pacific and, more controversially, is looking to build up in Britain by purchasing several hundred Royal Bank of Scotland bank branches in that market.

Neither board is believed to have any will or temperament to revisit the talks, at least not without a change of government or major shift in public policy.

Secret Swiss bank data put up for sale

SWITZERLAND faced a renewed assault on its private banking system as Germany considered paying for secret account data that detailed alleged tax evasion by about 1500 German taxpayers.

German authorities familiar with the investigation said a confidential informant had offered to sell them the data for €2.5 million ($4m).

The authorities, who say the information was stolen from a Swiss bank, say officials examined samples of the data that proved to be authentic.

Swiss banking, built on the promise of confidentiality, is still reeling from a bruising battle last year with the US over allegations regarding tax evasion by American taxpayers.

Many Swiss bankers worry that such cases will erode client trust and lead to a flight of accounts to other countries.

Under pressure from the US and other nations, Switzerland recently agreed to water down its banking secrecy laws.

Yet tax evasion is not a crime in Switzerland, and countries across Europe continue to complain that the Alpine nation is an attractive refuge for tax cheats.

A confrontation with Germany could represent the biggest challenge Switzerland has faced thus far.

Though the Swiss clash with the US drew much attention, Americans with offshore accounts in Switzerland represented no more than 5 per cent of Switzerland’s $US1.8 trillion ($2 trillion) offshore-banking business, according to KPMG.

German officials said the country’s taxpayers have about $US243 billion in Swiss bank accounts, or more than 10 per cent of the total.

Additional reporting by Deborah Ball

Goldman secret trade code stolen: FBI

A FORMER Goldman Sachs employee has been charged with stealing computer codes related to the firm’s high-speed trading platform.

Sergey Aleynikov, a naturalised US citizen who emigrated from Russia, allegedly unlawfully copied, duplicated, downloaded and transferred computer codes from a New York-based financial institution and uploaded the codes to a computer server in Germany, according to a complaint filed by federal prosecutors.

The complaint from the government didn’t specifically reference Goldman Sachs. Goldman Sachs was referenced during Saturday’s bail hearing, and a person familiar with the matter confirmed that Mr Aleynikov worked as a computer programmer for the company.

The person familiar with the matter also said the theft has had no impact on Goldman Sach’s clients and no impact on its business. The person said the codes involved Goldman Sachs’ proprietary trading, which is its business of trading securities with its own money.

Goldman Sachs has historically relied on proprietary trading for a large share of its revenue. The company does not break out specific profit or revenue for this business. The allegedly stolen codes related to proprietary trading that is done using computers.

Brad Hintz, a former chief financial officer for Lehman Brothers, said any theft of the codes would likely not have any serious impact on how Goldman does business. Whoever got their hands on the code might simply be able to execute a trade a bit faster than the securities firm, he said.

“There’s a lot more to Goldman Sachs than one (proprietary) trading desk, or even all of prop trading,” said Mr Hintz, now an analyst with Sanford Bernstein. “Wall Street’s systems may be the best in the world…this wouldn’t be an end-of-the-world event.”

Shares of Goldman closed up $US2.97, or 2.1 per cent, at $US146.46.

The alleged actions took place between June 1 and Friday, when Mr Aleynikov was arrested as he got off a flight at Newark Liberty International Airport. Mr Aleynikov worked at Goldman as a computer programmer from about May 2007 until about June 5.

Many Wall Street firms have cut back on riskier forms of proprietary trading since the onset of the financial crisis. However, there has been some indication that Goldman and others are ramping up this business again.

Questioned by Federal Bureau of Investigation officials, Mr Aleynikov admitted only to “unwitting conduct,” that whatever he is accused of doing wasn’t done on purpose. Mr Aleynikov’s lawyer, federal defender Sabrina Shroff, said she believed her client was innocent.

According to the complaint, Mr Aleynikov said after his arrest that he “only intended to collect ‘open source’ files on which he had worked, but later realised that he had obtained more files than he intended”.

He also “claimed that he did not distribute any of the proprietary software that he obtained from the financial institution” and had agreed with the new employer not to use unlicensed software.

Mr Aleynikov was granted bail. Bail includes a $US750,000 ($941,000) personal recognisance bond secured by three financially responsible persons and $US75,000 in cash.

He must surrender all travel documents, and travel is restricted to New Jersey and the southern and eastern districts of New York — Manhattan and Long Island.

FBI special agent Michael G. McSwain said in the filing that the computer codes were related to a platform that allowed Goldman Sachs to engage in high-speed and high-volume trades on stock and commodities markets.

The bank considers the code to be proprietary, confidential information and trades made on the platform generate millions of dollars in profits each year for the company.

The filing said Mr Aleynikov was given access to the computer code as part of a team responsible for developing and improving the platform. The company said he was required to sign its confidentiality agreement when he first took a job there.

The filing said at some point before June, Mr Aleynikov told Goldman Sachs he would resign. His salary at the time of his resignation was about $US400,000 a year. The FBI agent said a Goldman representative who spoke to Mr Aleynikov about his resignation said he was leaving to work for a new company that also planned to engage in high-volume automated trading.

Mr Aleynikov previously worked for telecommunications company IDT Corporation, where he worked as a systems architect for routing and internet phone service, according to his page on business networking website Linked-In. He also achieved a masters of science degree in 1996 from Rutgers University.

Additional reporting: Amir Efrati

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