Federal Court Orders Goldman Sachs to Advance Attorneys’ Fees to Ex-Employee Charged with Theft of Trade Secrets

On October 22, 2013, the United States District Court for the District Court of New Jersey ruled that Goldman Sachs Group, Inc., the parent company of Goldman Sachs & Co., must advance the legal fees and related costs that its former employee, Sergey Aleynikov, incurred and will incur in defending against New York State criminal charges that he stole confidential computer code from the company to benefit his new employer.  The Court’s decision regarding advancement turned on whether Aleynikov was deemed to be an “officer” as defined in Goldman’s by-laws, which permit advancement of legal defense expenses for officers.  The Court’s decision underscores the imperative for hedge fund managers to carefully define the scope of firm personnel who will be afforded the benefit of advancement and indemnification of legal expenses incurred in defending civil and criminal cases.  See “Hedge Fund D&O Insurance: Purpose, Structure, Pricing, Covered Claims and Allocation of Premiums Among Funds and Management Entities,” Hedge Fund Law Report, Vol. 4, No. 41 (Nov. 17, 2011).  This article summarizes the factual background and Court’s legal analysis, as well as lessons for hedge fund managers arising out of the decision.

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