Navinder Singh Sarao: ‘Flash crash’ trader made profit of £600,000 on the day, court hears

London extradition hearing hears charges of fraud and market manipulation against Navinder Singh Sarao

Navinder Singh Sarao arrives at Westminster magistrates’ court, where he is fighting extradition to the US (PA)

A British financial trader accused of triggering the 2010 Wall Street “flash crash” made more than £600,000 profits on the day, a court was told. Navinder Singh Sarao, 37, who operated from his parents’ home in Hounslow, west London, manipulated the market by making “false” and “fictitious” orders on the Chicago Mercantile Exchange (CME) for years, the court heard.

Mark Summers, QC, for the US government, said the futures trader made $875,000 (£615,000) on the day of the Flash Crash on 6 May 2010, when the Dow Jones Industrial Average plunged 600 points in five minutes, wiping tens of billions of dollars off the value of US shares.

Mr Sarao, who has been dubbed the “Hound of Hounslow”, is fighting extradition to the US where he faces 22 charges including wire fraud, commodities fraud, market manipulation and “spoofing” – the practice of bidding or offering with the intent to cancel the trade before actually executing the deal. If found guilty of the offences, he could face jail sentences in the US totalling a maximum of 380 years.

At the extradition hearing at Westminster magistrates court in London, Mr Summers claimed Mr Sarao was a prolific trader who earned $4m through his trades on another single day –4 August 2011 – and, in total, made $40m illegally over five years.

“The prosecution allegation is that he engaged in is what is known as spoofing,” Mr Summers said.

“Spoofing is market manipulation. The government allege he spoofed the market. It is dishonest trading. He never had the intention of seeing these fictitious and false orders being executed.

“They were not real orders. They were there solely to manipulate the market price.”

Mr Sarao is accused of placing multiple orders before cancelling them without executing them, causing prices to fall. US prosecutors claim that when the prices fell, Mr Sarao then sold futures contracts, only to buy them back at a lower price.

Conversely, when the market moved back up as the activity ceased, Mr Sarao allegedly bought contracts only to sell them at a higher price, the US Department of Justice said.

Mr Summers also claimed that over the course of 4 May 2010, Mr Sarao used his own modified software to alter his orders 7.4 million times to prevent them being executed – accounting for 42 per cent of all modifications across the entire market.

For the defence, former US Securities and Exchange Commission chief economist Larry Harris, giving evidence via a video link from California, explained that there were a variety of trading strategies and Mr Sarao’s might not necessarily have been spoofing trades. He said there were legitimate strategies that sometimes resemble spoofing.

Lawyers for Mr Sarao say his trades were “real orders that exposed the defendant to the real possibility of trading at the prices at which he posted his orders”. They will argue that his proximity to the flash crash, if any, was “remote”. They will also argue his actions did not constitute a crime in the UK and that any trial should be held in this country.

Wearing a dark grey suit, dark shirt and light blue tie, Mr Sarao - who has Asperger syndrome – sat with his head bowed throughout the hearing, which continues on Friday.