A British trader operating out of his parents’ West London semi is facing extradition to the US following allegations that he in part caused a stock market ‘flash crash’. Almost £570billion was wiped off the value of America’s biggest companies in just five minutes in 2010 thanks to market instabilities caused in part by the lone trader.
Navinder Singh Sarao, 36, is being held by the Metropolitan Police as part of an operation involving six agencies in the UK and US. He was arrested at the request of The US Department of Justice (DoJ) and the US Commodity Futures Trading Commission (CFTC), who have simultaneously charged him with manipulating the financial markets for personal gain.
This afternoon he appeared at Westminster Magistrates court and was asked whether he consented to extradition. He replied “no.”
Mr Sarao is alleged to have made £27 million in profit over five years. Despite his apparent wealth, he lives in a modest suburban home with his wife and two children just across the road from his parents house, which doubles as the headquarters for his company, Nav Sarao Futures.
Mr Sarao’s father, Nachattar Singh Sarao, told the Times that he had been unaware of the allegations, saying “All this is news to me. What you’re telling me is as much a surprise to me.” When asked about the nature of his son’s work, he answered: “I don’t know about computers.”
A neighbour said: “They are a quiet family, they say hello and goodbye, but that’s about it. The parents both work and their son lives opposite with his wife and two daughters. No-one has ever suggested they are wealthy.”
According to the US Commodity Futures Trading Commission (CFTC), for five years Mr Sarao traded using an algorithm to flood the market with fake orders, a practice known as spoofing. “When prices fell as a result, Mr Sarao allegedly sold futures contracts, only to buy them back at a lower price. Conversely, when the market moved back upward as the market activity ceased, Mr Sarao allegedly bought contracts, only to sell them at a higher price,” a spokesman for the commission said.
Aitan Goelman, director of enforcement at the CFTC said that Mr Sarao had been “extremely active” in the markets leading up to, and on the day of the flash crash which occurred on 6th May 2010. The Dow Jones Industrial Average fell by 998.5 points within just 45 minutes on that day, although it subsequently rallied to end the day 348 points down.
Mr Sarao’s conduct “was at least significantly responsible for the order imbalance that in turn was one of the conditions that led to the flash crash.” Mr Goelman said.
Working alongside the CFTC, the Department of Justice filed a sealed criminal action charging Mr Sarao and Nav Sarao Futures with 22 counts of manipulation, attempted manipulation, spoofing and wire fraud, the Telegraph has reported. If found guilty he faces between 5 and 25 years in jail on each count, with a potential maximum sentence of 380 years.
Mr Sarao remains in custody while awaiting a decision on extradition, due to be made this summer. An American judge has ordered that the assets of Mr Sarao and his trading company, said to be worth £4.6 million, be frozen. However, in a statement on the allegations the DoJ made it clear that the charges “are merely accusations, and the defendant is presumed innocent unless and until proven guilty”.
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