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‘Flash crash’ trader avoids further jail time

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Via Financial Times

Navinder Singh Sarao, the British trader implicated in the 2010 stock market “flash crash”, avoided further jail time on Tuesday as his sentencing in Chicago brought a years-long legal drama to a close.

The 41-year-old west London-based trader, who has autism and lives with his parents, was sentenced to a year of home imprisonment after he pleaded guilty to “spoofing” charges and subsequently co-operated with an ongoing US crackdown on abusive trading practices.

Wearing a black suit and blue tie, Mr Sarao told the court ahead of his sentencing on Tuesday that his life had changed drastically after his arrest, and that he would never have engaged in spoofing if he had known it could lead to possible jail time.

“From the moment I started trading, I became completely engrossed in it,” he told the court. “It was only after I was arrested that I realised I was totally addicted to it. I made more money than I could have ever imagined, but I did not feel any different. I was still just me, but I felt pressured to live a different life.

“When I was at home playing video games, that was OK when I was poor, but now that I was rich, surely I should be doing something more extravagant. But whenever I thought about buying nice things, I knew that I would just get bored with them.”

District judge Virginia Kendall said on Tuesday that she wanted her sentence to reflect the severity of Mr Sarao’s actions while mitigating the impact that further imprisonment would have on someone with autism.

Mr Sarao had admitted in 2016 that he manipulated the market in E-Mini S&P 500 futures over five years by rapidly placing and withdrawing orders to push prices up and down, an illegal tactic called spoofing.

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Earlier this month, US prosecutors hailed his “extraordinary co-operation” and asked the federal judge overseeing Mr Sarao’s case to give him a sentence of time served.

Roger Burlingame, the trader’s attorney, told the court his client currently lived off government benefits after he was defrauded of the majority of the $70m in trading profits he earned and paid back the rest.

“He spent no more as a multimillionaire than he now does as a public benefits recipient,” wrote Mr Burlingame, noting that Mr Sarao’s only purchase had been a £5,000 second-hand Volkswagen that he found too stressful to drive.

After the sentencing, Mr Burlingame said he was grateful to the judge for her decision. “Nav has been living under the threat of a very long sentence for almost five years. He is overjoyed to put this behind him, go home, and move on with his life.”

Mr Sarao’s case drew widespread attention as he unsuccessfully fought extradition from the UK to the US after his initial arrest in 2015, when he spent four months in prison in London.

The US blamed him for causing the 2010 “flash crash”, where the US stock markets crashed and quickly rebounded in a single afternoon, while the British press dubbed him the “Hound of Hounslow”.

The claims that Mr Sarao’s trading, much of it automated, had triggered the 2010 crash drew widespread scepticism but his case was a signal of the determination of US prosecutors to crack down on spoofing, which was first made illegal in 2010 with the post-crisis Dodd-Frank reforms.

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In just over five years, the US Department of Justice has charged 20 individuals with spoofing offences. Of those that have gone to trial rather than pled guilty so far, two have been acquitted and one has been convicted.

Jitesh Thakkar, a software developer, was acquitted last year after a trial that included testimony from Mr Sarao. Andre Flotron, a former UBS trader, was acquitted in 2018.

Michael Coscia, a high-frequency trader who was the first indicted for spoofing in 2014 and remains the only person convicted at trial, was released last year after serving three years in prison.

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