Navinder Sarao, the UK-based trader accused for his part in the 2010 “flash crash” by spoofing trades with a computer program, appeared in a US court yesterday where he pleaded guilty to wire fraud and spoofing. Sarao now faces up to 30 years in jail.
In the aftermath of the flash crash, US indices tumbled 9 per cent, with liquidity from the market rapidly disappearing as high-frequency trading shops hit the ‘stop’ button on their algos. The Dow Jones Industrial Average also shed nearly 1000 points in minutes, with the bulk of the move rapidly being retraced back. Sarao’s trading netted him $900,000 profit that day and over than $40 million over four years.
Sarao made headlines around the world as people attempted to figure out how a single day trader could make so much money and wreak such havoc on the markets from his bedroom in a house where he lived with his parents.
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Sarao’s request for permission to appeal his extradition was rejected by judges in London in October, giving him 28 days to be sent to the US to face 22 charges of fraud and market manipulation. Sarao’s lawyers had tried to argue that his actions were not a crime in the UK and as a British citizen, his trial should take place on home ground. Sarao, however, has recently been extradited to the US.
In an update to the case released by the US Commodity Futures Trading Commission (CFTC), the Commission which charged Sarao with unlawfully manipulating, attempting to manipulate, spoofing and use of a manipulative device, has submitted a proposed Consent Order that would resolve its civil enforcement action against Sarao.
The proposed Consent Order, which was filed jointly by the CFTC and Sarao for the court’s consideration and review, also seeks imposition of more than $38 million in monetary sanctions, permanent trading and registration bans, and permanent prohibitions against further violations of the Commodity Exchange Act and CFTC Regulations against Sarao.
Spoofing is a fraudulent or malicious practice in which communication is sent from an unknown source disguised as a source known to the receiver. Trader Michael Coscia was the first person to be convicted of spoofing and commodities fraud in 2015 in Chicago after it was made illegal by the 2010 Dodd-Frank act.