Navinder Singh Sarao, the British day trader accused of contributing to the 2010 Flash Crash, was allowed to return to his parents’ home near London’s Heathrow Airport after becoming the second person convicted of manipulating commodities markets by placing orders he never intended to fulfill.
Mr Sarao, 37, extradited from the UK two days ago, pleaded guilty to spoofing and wire fraud in a Chicago federal court and agreed to forfeit $12.9 million in ill-earned gains from his trades. He was accused of making $40 million spoofing the Chicago Mercantile Exchange’s stock futures market over five years, including on May 6, 2010, when a trading frenzy briefly wiped almost $1 trillion from the value of American equities.
He was accused of making $40 million spoofing the Chicago Mercantile Exchange’s stock futures market over five years, including on May 6, 2010, when a trading frenzy briefly wiped almost $1 trillion from the value of American equities.
His case grabbed headlines around the world as people struggled with the idea that a single day trader – often working from his bedroom in the house he shared with his parents – could make so much money and wreak such havoc on markets.
Mr Sarao’s plea came a year after trader Michael Coscia was convicted of spoofing and commodities fraud by a Chicago jury in the first criminal trial since such activity was made illegal. In the same court, the Commodity Futures Trading Commission reached a settlement in October in its lawsuit accusing Igor Oystacher and his 3Red Trading of spoofing, a form of manipulation that involves moving prices by placing orders without intending to execute them.
Mr Sarao also agreed to pay a penalty of $25.7 million to the CFTC to resolve a 2015 civil lawsuit filed against him by the commission. That settlement, which must be approved by a judge, bans Sarao from trading derivatives.
He faces a prison sentence of as much as 30 years. In reality, that maximum sentence is more an indication of the severity of the alleged crimes than the actual sentence he might receive.
Dressed in an orange prison jumpsuit with his ankles chained, Mr Sarao stood in court on Wednesday with his hands behind his back, responding softly “yes, your honor” when asked whether he understood the terms of his plea agreement and release.
He told US District Judge Virginia Kendall he had a degree in mathematics and computer science. When the judge asked whether he had been treated for a mental illness, his lawyer, Roger Burlingame, said Mr Sarao has “severe Aspergers” but hasn’t been treated for it. While Mr Sarao has “very limited functionality” and lacks social skills, he has extraordinary abilities, including pattern recognition, Mr Burlingame said.
Judge Kendall approved Mr Sarao’s release before sentencing under a plea agreement with prosecutors after confirming the process for placing liens on the property of his parents and brother in the UK The judge called Mr Sarao’s father to make sure he understood that his home was being used to secure the $750,000 bond for release.
Mr Sarao will be under curfew from 11 pm to 4 am and will be barred from travelling outside the UK or drinking excessively. “He doesn’t take any sort of intoxicant at all,” Mr Sarao’s father said. “He doesn’t even drink tea or coffee.”
The judge set a status conference for 9 February to decide on a sentencing date.
While fighting extradition, Mr Sarao spent four months in prison last year as he tried to secure bail, eventually winning his release in the UK by disclosing he had about £25 million of assets in Switzerland.
Biggest business scandals in pictures
Biggest business scandals in pictures
1/20 UK to crack down on bank money laundering after reports of £65bn Russian scam, City minister says - Tuesday March 21
The Economic Secretary to the Treasury has vowed that the Government will crack down on money laundering practices, after several of the UK's biggest banks were accused of processing money from a Russian scam, believed to involve up to $80bn (£65bn).
2/20 Former HBOS bankers convicted of bribery and fraud over £245m loan scam - February 2017
Two former HBOS bankers were among six people found guilty of bribery and fraud that cost customers and shareholders hundreds of millions of pounds, the BBC reports. Lynden Scourfield, 54, a manager at HBOS, forced struggling clients to use the services of his friends David Mills, 60, and Michael Bancroft, 73. In return, the two businessmen arranged sex parties, cash and lavish gifts. On Monday, the three were convicted at Southwark Crown Court on accounts including bribery, fraud and money laundering. Mark Dobson, another manager at HBOS, Alison Mills, and John Cartwright were also convicted.
3/20 Former Reckitt Benckiser executive linked to death of 100 people in South Korea jailed for seven years - Friday January 6
A former South Korean executive of UK-based Reckitt Benckiser has been jailed for seven years over the sale of a humidifier disinfectant that killed about 100 people and left hundreds with permanent lung damage. Shin Hyun-woo, head of Reckitt Benkiser’s Oxy subsidiary from 1991 to 2005, was found guilty of accidental homicide and falsely advertising the deadly product as being safe even for children. The consumer product disaster affected many families in South Korea, where children and pregnant women often battle dry winter seasons with humidifiers. Other retailers such as Lotte Mart and Homeplus were also found guilty of selling the deadly product.
4/20 Rogue trader
A French court cut the damages owed by rogue trader Jerome Kerviel from €4.9bn (£4.2bn) to just €1m (£860,000). The court ruled on that Kerviel was “partly responsible” for massive losses suffered in 2008 by his former employer Societe Generale through his reckless trades. Kerviel has consistently maintained that bosses at the French bank knew what he was doing all along.
5/20 Lloyds chief apologises for damage caused by affair allegations - August 2016
Antonio Horta-Osorio, the chief executive of Lloyds Bank, has broken his silence over allegations about his private life admitting he regrets any "damage done to the group's reputation". In a message sent to the bank's 75,000 employees, the banker said that anyone can make mistakes while insisting that staff had to maintain the highest professional standards.
6/20 Christine Lagarde faces court over £340m Bernard Tapie payment - July 2016
The head of the International Monetary Fund (IMF), Christine Lagarde, must stand trial in France over a payment of €403 million (now £340m, then £290m) to tycoon Bernard Tapie, a France's highest appeals court has ruled. The court rejected Ms Lagarde's appeal against a judge's order in December for her to stand trial over allegations of negligence in her handling of the affair. Ms Lagarde could risk a maximum penalty of one year in prison and a fine of €15,000 euros if convicted.
7/20 HSBC senior manager arrested in FX rigging investigation at JFK airport in New York - July 2016
A senior executive at HSBC has been arrested at New York's JFK airport for his alleged involvement in a conspiracy to rig currency benchmarks, according to reports. Mark Johnson, global head of foreign exchange cash trading in London, was reportedly arrested on Tuesday. He will appear before a federal court in Brooklyn on Wednesday charged with conspiracy to commit wire fraud, Bloomberg said.
8/20 Former PwC employees found guilty in 'Luxleaks' tax scandal - June 2016
Two ex- PricewaterhouseCoopers staffers were found guilty in Luxembourg of stealing confidential tax files that helped unleash a global scandal over generous fiscal deals for hundreds of international companies. Antoine Deltour and Raphael Halet face suspended sentences of 12 months and 9 months and were ordered to pay fines of €1,500 (£1,230) and €1,000 (£822) for their role in the so-called LuxLeaks scandal. Despite the minimal sentences, the ruling was described by Deltour’s lawyer as “shocking” and “a terrible anomaly.” The ruling “puts on guard future whistle-blowers,” Deltour told reporters.The LuxLeaks revelations sped beyond Luxembourg, causing European Union regulators to expand a tax-subsidy probe and propose new laws to fight corporate tax dodging, while EU lawmakers created a special committee to probe fiscal deals across the 28-nation bloc.
9/20 Goldman Sachs dealmakers lavished Libyan officials with prostitutes to win contract - June 2016
A former Goldman Sachs dealmaker trying to persuade Gadaffi-era Libya to invest $1 billion with the investment bank procured prostitutes and invited Libyan officials to lavish parties in the hope of winning the business, the High Court heard on Monday June 13.The Libyan Investment Authority sovereign wealth fund is suing Goldman Sachs for inappropriately coercing its naïve staff into giving its sovereign wealth fund cash to the bank to invest in products they did not understand. The products were designed to generate big profits for Goldman, the LIA claims.Goldman denies wrongdoing and says the LIA was treated as an arms-length customer
10/20 Former boss of BHS said his life was threatened - June 2016
Darren Topp, the former boss of BHS, has said former owner Dominic Chappell threatened to kill him when he challenged him over a £1.5 million transfer out of the business. MPs on the Business, Innovation and Skills Committee asked Mr Topp about a £1.5 million transfer Mr Chappell made from BHS to a company called BHS Sweden.
11/20 Sports Direct founder Mike Ashley admits paying workers below the minimum wage - June 2016
Mike Ashley admitted paying Sports Direct employees below the minimum wage at a hearing in front of MPs. The company founder said that workers were paid less than the statutory minimum because of bottlenecks at security in an admission that could result in sanctions from HMRC.
12/20 Mitsubishi admits ‘improper’ fuel tests - April 2016
Mitsubishi has admitted to using false fuel methods dating back to 1991. The scale of the scandal is only just coming to light after it was revealed in April that data was falsified in the testing of four types of cars, including two Nissan cars.
13/20 Panama Papers: Millions of leaked documents expose how world’s rich and powerful hid money - April 2016
Millions of confidential documents have been leaked from one of the world’s most secretive law firms, exposing how the rich and powerful have hidden their money. Dictators and other heads of state have been accused of laundering money, avoiding sanctions and evading tax, according to the unprecedented cache of papers that show the inner workings of the law firm Mossack Fonseca, which is based in Panama.
14/20 Google's tax avoidance
Google reached a deal with the HM Revenue and Customs to pay back £130 million in so-called “back-taxes” that have been due since 2005. George Osborne championed the deal as a “major success”. But European MEPs have since called for the Chancellor to appear in front of the committee on tax rulings to explain the tax deal.
15/20 Turing Pharmaceuticals and Martin Shkreli
Martin Shkreli became known as the “most hated man in the world” after his drug company, Turing, increased the price of a 62-year-old drug that treated HIV patients by 5,000% to $750 a pill. He was charged with illegally taking stock from Retrophin, a biotechnology firm he started in 2011, and using it pay off debts from unrelated business dealings. Shkreli, who maintains he is innocent, and says there is little evidence of fraud because his investors didn't lose money.
16/20 Volkswagen emissions scandal
VW admitted to rigging its US emission tests so that diesel-powered cars would looks like they were emitting less nitrous oxide, which can damage the ozone layer and contribute to respiratory diseases. Around 11 million cars worldwide were affected.
17/20 Quindell, the scandal-ridden insurance firm
Quindell was once a darling of AIM but its share price fell in April 2014 when its accounting practices were attacked in a stinging research note by US short seller Gotham City. In August the group was forced to disclose that the £107 million pre-tax profit it had reported for 2013 was incorrect, and it had in fact suffered a £64million loss.
18/20 Toshiba Accounting Scandal
The boss of Toshiba, the Japanese technology giant, resigned in disgrace in the wake of one of the country’s biggest ever accounting scandals. His exit came two months after the company revealed that it was investigating accounting irregularities. An independent investigatory panel said that Toshiba’s management had inflated its reported profits by up to 152 billion yen (£780m) between 2008 and 2014.
19/20 FIFA Corruption Scandal
Fifa, football's world governing body, has been engulfed by claims of widespread corruption since the summer of 2015, when the US Department of Justice indicted several top executives. It has now claimed the careers of two of the most powerful men in football, Fifa President Sepp Blatter and Uefa President Michel Platini, after they were banned for eight years from all football-related activities by Fifa's ethics committee. A Swiss criminal investigation into the pair is ongoing.
20/20 Libor fraudster
City trader Tom Hayes, 35, has become the first person to be convicted of rigging Libor rates following a trial at London's Southwark Crown Court. Hayes worked as a trader in yen derivatives at UBS before joining the American bank Citigroup in Tokyo. He was fired from Citigroup following an investigation into his trading methods. He returned to the UK in December 2012 and was arrested following a two-and-a-half year criminal investigation by the SFO.
US prosecutors said Mr Sarao manipulated one of the most important financial assets in the world – futures on the S&P 500 Index, the benchmark measure for US stock prices.
The case shone a light on spoofing, a form of cheating made illegal through the 2010 Dodd-Frank Act. The technique is frowned upon because it undermines the validity of price quotes. Spoofing involves placing orders to buy or sell with the intent of moving prices in one direction, then canceling those trades before they’re executed to profit when prices snap back to where they had been.
Mr Sarao’s lawyers challenged the US case by arguing in October that his actions weren’t a crime in the UK, and, because he is a British citizen, that any trial should take place in England. The prosecution countered that while Mr Sarao was in the UK, most of the damage was on an American trading platform.
“Navinder Sarao abused sophisticated technology to make a quick profit, and jeopardised the integrity of US financial markets,” US Assistant Attorney General Leslie Caldwell said in an emailed statement. “By flooding the marketplace with bogus orders, his scheme victimised countless individuals.”
- More about:
- Flash Crash