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'Flash crash' trader vows to fight extradition to the US

Navinder Sing Sarao submitted then cancelled 62,000 trades in a month

David Connett
Wednesday 22 April 2015 21:21 BST
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A court sketch shows Navinder Singh Sarao opposing his
extradition to the US at Westminster magistrates’ court
A court sketch shows Navinder Singh Sarao opposing his extradition to the US at Westminster magistrates’ court

A British financial trader accused of helping trigger a “flash crash” which caused mayhem on US stockmarkets has vowed to fight a bid to extradite him to the US.

Navinder Singh Sarao, a 36-year-old former bank worker who traded by computer from a modest semi-detached house in Hounslow, west London, where he lived with his parents, was granted bail set at £5.1m in a court hearing yesterday. He was warned not to use computers or risk going to jail.

He will return to Westminster magistrates’ court later this year to contest the US Justice Department’s application to extradite him to Chicago on 22 charges including wire fraud, commodities fraud, market manipulation and “spoofing” – a practice of bidding or offering a trade with the intention of cancelling the bid or offer before the deal is done.

Television crews wait outside the house in Hounslow, west London, where Nav Sarao Futures Limited is registered

His alleged manipulation earned him massive profits and contributed to a major drop in the US stock market on 6 May 2010 which came to be known as the “flash crash”, wiping billions of dollars off the value of major international companies within minutes, US prosecutors have said.

Aaron Watkins, prosecuting for the US judicial authorities, alleged Mr Sarao and his company, Nav Sarao Futures Ltd earned £25m trading on the Chicago Mercantile Exchange (CME) over a four-year period from 2010 till last year.

In May 2010, when the “flash crash” occurred, Mr Sarao placed orders to carry out more than 62,000 trades with a “notional value of $3.5bn” which were all cancelled within four hours, according to US investigators. They claim he used a specially customised computer algorithm which helped him cancel the futures trades placed on the Chicago Mercantile Exchange. They alleged that as a result of his market manipulation, he drove down the price of the contracts he was trading in and profited by buying at a low price and then selling when prices recovered. They claim on the day of the “flash crash” his trades earned him $879,018 net profit.

Navinder Singh Sarao is said to have manipulated the price of futures on the CME, leading to market chaos in 2010 (Getty)

Mr Watkins said the investigation into the trader and his company were “ongoing”.

Mr Sarao’s defence lawyer, Joel Smith, told the court his client denied any criminality. “This is a matter that has come as something of a bolt from the blue for Mr Sarao,” he said.

British-born Mr Sarao, a Brunel University graduate, appeared in the dock wearing a bright yellow sweatshirt and white tracksuit bottoms. He was arrested on Tuesday at his home by officers from Scotland Yard’s extradition unit on behalf of US authorities.

Granting Mr Sarao conditional bail, District Judge Quentin Purdy said: “I suspect the last 24 hours or less have been somewhat dramatic for you.” Judge Purdy said Mr Sarao’s bail conditions included living and sleeping at his home address with an electronic tag monitoring his curfew from 11pm to 4am, surrendering his passport and the passports of his parents, reporting to a police station three times a week, not using the internet and not attempting to leave the country.

The judge warned Mr Sarao that he was facing serious criminal charges and that, if convicted, he could face a lengthy jail sentence. The court was told that a wire fraud charge carried a maximum penalty of 20 years, commodities fraud 25 years, and the other offences 10 years each.

Photographers try to take photos through the windows of a prison van transporting Navinder Singh Sarao, as it leaves Westminster Magistrates court

As details of the charges Mr Sarao emerged, there was growing criticism of the US regulators’ case. On the day of the “flash crash”, the CME wrote to Mr Sarao telling him that orders had to be “entered into in good faith for the purposes of executing bona fide transactions.” Mr Sarao told them to “kiss my ass,” according to an email he sent to his broker. According to US legal documents, he continued to similarly trade for a further four years before he was arrested. The most recent charge he faces dates from March 2014.

The Business Insider website last night quoted several futures traders critical of the US regulators’ position. One unnamed trader said: “My gut says he is basically being made a target because they need someone to blame for the ‘flash crash’.”

One New York trader pointed out Mr Sarao had been using the trading algorythm before the “flash crash” and in the years after. “If he was the cause of the crash, why did we only have one crash in that period?”

Critics also point out the CME’s own investigation into the flash crash in 2010 blamed a faulty $4.1bn sale of futures by a single US institutional investor.

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