US prosecutors recommend no jail time for ‘flash crash’ trader
US prosecutors have recommended that Navinder Singh Sarao, the UK trader linked to the 2010 “flash crash”, should get no jail time, citing his “extraordinary co-operation” in their crackdown on market abuse.
Mr Sarao pleaded guilty in 2016 to US “spoofing” charges related to his trading in E-Mini S&P 500 futures over five years. Spoofing involves placing and withdrawing bids in the market at a rapid pace to manipulate prices.
The case drew attention as Mr Sarao unsuccessfully fought extradition from the UK to the US and was controversially linked to the 2010 flash crash, when the US stock market suddenly plunged in value before quickly recovering.
“The defendant’s co-operation has spanned years — from November 2016 through at least April 2019 — and has been extraordinarily timely, complete, truthful, and helpful to the government,” prosecutors wrote in a memo filed late on Tuesday, ahead of Mr Sarao’s sentencing this month.
Mr Sarao was arrested in the UK in 2015 and spent four months in jail, as part of a US crackdown on spoofing, which was first made illegal in 2010 by the post-crisis Dodd-Frank reforms.
The 41-year-old, dubbed by the British press as the “Hound of Hounslow”, had built a lucrative trading career off S&P 500 E-Mini futures from his parents’ home in west London. His spoofing techniques included using software to place orders he did not intend to fulfil near the prevailing market price and constantly moving them as the market moved, ensuring they would never be executed.
Prosecutors said he made $70m in profits, $12.8m of that unlawfully, but lost a large chunk of the money when he was defrauded by several fake investment schemes. Despite the huge sums of money, Mr Sarao did not live “anything approaching an extravagant lifestyle”, prosecutors said, noting that his only significant purchase was a £5,000 second-hand Volkswagen.
He has forfeited $7.6m, “his only remaining trading profits”, according to the government. His co-operation included testifying last year in the case of Jitesh Thakkar, who was accused of aiding Mr Sarao’s spoofing by building custom software. Mr Thakkar was ultimately acquitted after the trial ended with a hung jury.
Mr Sarao, who has autism, continues to live with his parents and his primary source of income is $336 a month in government benefits, his lawyer, Roger Burlingame, said in his own sentencing memo.
“Nav is profoundly remorseful for what he did,” Mr Burlingame wrote. “Nav’s fate is knowing that he unthinkingly hurt innocent victims, caused enormous pain to his family, and threw his life away for, essentially, nothing — to get the high score on what was, to him, nothing more than another video game.”