They Quit Goldman’s Star Trading Team, Then The Bank Raised Alarms

When the duo accepted new jobs at a hedge fund this year, they said, the bank urged them to reconsider. One recalled that after he refused, his manager’s tone shifted to a warning: “I would be concerned about your behavior in the past” at Goldman.

Soon after, Goldman fired the pair — Jon “JP” Paul and Sina Lashgari — from jobs on its program-trading desk, telling regulators they accessed sensitive computer code without authorization or a valid business purpose. Goldman suspected, but couldn’t prove, they intended to swipe some of the secret sauce behind several hundred million dollars in revenue, according to documents seen by Bloomberg. A notice it posted in their public employment records is now a red flag to any future employer.

Side by side at their lawyer’s office, Paul and Lashgari took the unusual step of opening up about Goldman’s allegation and their bitter breakup with one of Wall Street’s most elite banks. The way they see it: They did nothing wrong, and the ouster was retaliation, designed to send a message to their former team.

“We didn’t take a single line of code,” said Paul, a trader on the desk.

“I have worked hard to establish my career and reputation. Goldman will not take that away from me,” said Lashgari, who was a coder. “I was shocked by Goldman’s reaction to our resignations. I worked with these people for 10-12 hours a day for six years, and they know what type of person I am.”

The messy exit of two employees who pulled in seven-figure paydays from a vaunted Goldman team is a jarring turn in Wall Street’s yearlong war for talent. The pressure on investment banks to guard their franchises is particularly acute right now. Trading is pulling a lot of weight in earnings, there are few strategies left that offer an opportunity for outsize hauls, and just about every bank is fighting a tidal current of turnover.

While acrimony and breakups between banks and their talent are inevitable, they tend to stay quiet. This one offers a rare look at a trading desk that generates more revenue per employee than almost any other at Goldman. The unit, with about 20 people, crafts algorithms to help wager Goldman’s cash, raking in profits by anticipating and reacting to changes in the world’s biggest stock indexes.

It’s a business line that has a history of high anxiety over decampments, at a bank that spends deeply to get a technological edge and guards it fiercely.

“Our investigation showed that these employees engaged in serious misconduct,” said Andrea Williams, a spokesperson for the bank, who rejected any notion of retaliation. “They were terminated for accessing confidential and proprietary firm information without authorization and for refusing to cooperate fully with the firm’s investigation.”

A third-party forensic firm that both sides agreed to hire rooted through their computers and mobile phones. The review didn't find evidence of data transfer or any communication “that would suggest an intention to initiate mass deletions or transfers,” according to an April 4 report seen by Bloomberg.

Goldman sought a broader review of their communications, couldn’t make much headway and weeks later fired the two vice presidents. It then levied an unusual accusation in a database maintained by the Financial Industry Regulatory Authority that they improperly accessed systems and that Lashgari took steps to cover his tracks. Their attorney said those disclosures are unfairly hurting their reputations.

“Goldman’s actions were defamatory and unlawful,” said the lawyer, Lou Pechman. He said his clients cooperated with the review. “We are keeping open all of our litigation options.”

The pair had resigned to go join Verition Fund Management, a person with knowledge of the matter said, a firm that ran about $5 billion as of April. “Where we are going is confidential, but it’s a place with incredibly talented people, a terrific culture and a strong track record,” Paul said.

Big Opportunity

The rise of passive investing over the past few decades has created a big opportunity for sophisticated trading firms like Goldman. Indexes publicly lay out their methodology for picking which stocks to add or bump out of their rosters, known as index rebalancing. Once they make their decisions, the tweaks trigger a wave of buying and selling by passive funds, which have to rebalance portfolios that collectively command trillions of dollars.

If a bank like Goldman or hedge fund such as Millennium Management can develop systems that predict which stocks are ripe for inclusion, they can position themselves to profit. That’s the program-trading desk’s key remit. Other events, like mergers, can also create similar opportunities. In either case, the earlier the firm guesses right, the better chance it has of capitalizing. Over the years, Goldman has assigned traders and coders to work together and help develop mathematical models and software tools.

Goldman doesn’t break out how much it earns from anticipating changes to indexes, and Paul and Lashgari wouldn’t discuss it. But the prowess of its franchise is an open secret on Wall Street. According to conservative estimates from rival traders and industry observers, it pulled in at least $700 million in each of the past two years, trouncing banking peers. Senior traders point out that the strategy has gotten crowded and the opportunity to make easy money from the niche has waned. This year may be lean for many.

Goldman sees the hedge funds in this space as its direct competition. The firm has poured talent and resources into the strategy and made capital available as needed. Notable names have called the desk home over the years. Joe Montesano established himself there before rising to head US equity trading for Goldman. Anne-Victoire Auriault, one of the firm’s youngest partners, is part of the current team. 

Inside Goldman’s equities business, the group is a bastion that still deploys the bank’s own money without waiting for clients to submit orders. After the 2008 financial crisis, big banks were broadly banished from wagering their own capital to hunt for profits. But it's still de rigueur in fixed income, where banks match sellers with buyers in less-liquid markets. The rules allow for such risk-taking if there is “reasonably expected near-term demand.” Goldman leans on that same logic in the index-rebalancing business, knowing that when indexes change, the demand from passive funds surges.

Despite all the interest attracted by the strategy, it’s a corner of Wall Street where relatively few people understand how to succeed, making Goldman particularly protective of its group. Last year, the bank even extended non-compete clauses for the junior members of its team to six months on top of a notice period when they want to leave.

Lashgari described himself as his group’s most senior coder aside from its leader and said he routinely monitored and tweaked its library.

“I was a designated code reviewer for all of the desk’s confidential and proprietary code,” Lashgari said. He called Goldman’s accusation of improper access baseless. “Had we agreed to reconsider the resignations, none of this would have happened.”

For decades, the bankers and traders who found their way into the heart of Wall Street have tended to be one of two types. There are those born into pedigrees and connections that make careers in dealmaking seem almost inevitable, and the outsiders who arrive with ambition and smarts. Paul and Lashgari's biographies read like the latter.

Paul said he was born in 1993 an hour outside Haiti’s Port-au-Prince and grew up near Philadelphia, where his father drove a cab and his mother worked shifts as a nurse. At Columbia University, he studied computer science and economics and joined the National Society of Black Engineers, where another member told him about Goldman. What hit him was “the energy and vibrancy radiating across the trading floors” and “the sports-team-like atmosphere,” he recalled.

Lashgari was born in 1987 in Iran’s Kurdistan province near Iraq and moved at age 5 to Tehran, he said. He graduated from one of the country’s premier schools for gifted students, studied electrical engineering and then moved to the US for a Ph.D. at Cornell University on the mathematics of satellite communications.

After interning at Goldman, he joined the program-trading group in 2016, where Paul was already plying his craft.

Biblical Betrayal

One reason big banks pay handsomely is that investment firms pay even more. If a bank assembles a successful trading team, it’s under pressure to keep the talent from jumping ship and to protect intellectual property. Goldman’s protectiveness may be understandable, but sometimes it has also prompted questions over whether it’s too aggressive.

Most famously, the bank enlisted US authorities in 2009 when it believed a computer programmer, Sergey Aleynikov, was making off with source code for high-speed trading on his way to another job. That unleashed a decade-long legal saga, and a debate over the fairness of his prosecution. After years of battling federal and state charges, and winning acquittals on most of them, Aleynikov was found guilty on one count of unlawfully using secret scientific material and sentenced to time served.

In the midst of that battle, another Goldman program trader, Glen Scheinberg, jumped ship to multibillion-dollar hedge fund Millennium along with three colleagues, stirring yet more consternation within the bank. That hedge fund group became one of the most successful index-rebalancing teams on Wall Street.

Paul said that the day he submitted his resignation a manager told him Goldman doesn’t like it when employees leave in unison, warning, “this was a team move and the firm does not take these things lightly.”

Earlier this year, other parts of Goldman turned heads in the industry as the firm denied past compensation awards to key executives who decided to leave. At one point it even looked to confiscate vested stock awards from some defectors, a measure usually reserved for cases of misconduct.

The disclosures in Paul and Lashgari’s Finra employment files are rare. A review of Finra’s database shows accusations against only about 70 brokers terminated from Goldman in the past decade, according to SLCG Economic Consulting. Among those, only Lashgari and Paul were accused of improperly accessing proprietary information.

“After making hundreds of millions of dollars in profit for Goldman, it would have been nice for Sina and JP to have received a ‘thank you’ and a goodbye handshake,” said Pechman, their lawyer. “Goldman unfairly viewed JP’s and Sina’s departures as a betrayal of biblical proportions.”

(Updates with name of hedge fund in 14th paragraph.)

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