'Flash crash' case: UK trader to fight extradition to US
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Version 0 of 1. A British financial trader has been granted bail on sureties of more than £5m after appearing in court accused of contributing to the 2010 Wall Street “flash crash” that wiped billions of dollars from the value of US shares in minutes. Navinder Singh Sarao, 36, from Hounslow, west London, is accused of helping to trigger the stock market crash that sent the Dow Jones index down more than 5% in five minutes, five years ago. He appeared at Westminster magistrates court on Wednesday morning after being arrested the night before, following a US Department of Justice (DoJ) request for his extradition to the US. He will remain in jail for at least one more night until the bail conditions can be met. Wearing a yellow sweatshirt and tracksuit bottoms, he spoke to confirm his name, address and date of birth. Asked if he consented to his extradition, he said no. Aaron Watkins, representing the US government, said Sarao was wanted for trial in Illinois on multiple charges of wire fraud, commodities fraud and market manipulation from which he had made $40m (£26m) over five years. Sarao is also accused of “spoofing”, a practice of bidding or offering with the intent to cancel the bid before execution. It is alleged that using a commercially available automated trading programme he manipulated the market for futures contracts on the Chicago mercantile exchange. Watkins said he faced one count of wire fraud, which carried a maximum sentence of 20 years; 10 counts of commodities fraud, which carried a maximum sentence of 25 years per count; 10 counts of commodities manipulation, which carried a maximum sentence of 10 years per count; and one count of spoofing, which carried a maximum of 10 years. The software allegedly used by Sarao allowed traders to “communicate with markets as quickly as possible, to request or cancel an order almost simultaneously in under one second”, Watkins said. Sarao was able to place multiple large sell orders, then cancel them “and exploit inflation for personal gain”, he added. Sarao had been warned about his conduct, he said. “He was asked to desist from this conduct by the US authorities and failed to do so knowing it was wrong.” The affidavit released by DoJ officials detailed some of the replies Sarao is said to have given to regulators when contacted about his trades. In 2014, he explained his successes to the Financial Conduct Authority by saying “he had always been good with reflexes and doing things quick”. He also apologised to the Chicago Mercantile Exchange and his broker in March 2010 after placing a large number of cancelled orders, which he said occurred after he had been demonstrating to a friend what was done “by the high-frequency [trading] geeks”. In another response to an effort to contact him in May 2010, Sarao is said to have emailed his broker to say that he had “just called” the Chicago exchange “and told ’em to kiss my ass”. Sarao was granted conditional bail on sureties of £5m from himself and £50,000 from his family, after the court was told he had £5m in a trading account, of which £4.7m was a loan. He also had £100,000 in “numerous betting accounts”. His father, who is retired, had offered £30,000 surety, as well as £100,000 equity from the family home in Hounslow. His two brothers – one is an optician and the other an IT consultant – each had offered a £10,000 surety. Arguing for bail, Joel Smith, defending, said Sarao, who was born in Britain and attended Brunel University, was of “impeccable character” with no previous convictions apart from speeding tickets. He lived with his parents, while one brother lived opposite and another nearby. “It can only be said he has the strongest possible community ties in this country and, frankly nowhere else to go. “The whole point of surety is to provide an incentive that prevents any risk. There is no greater risk than that the family home could be lost and one’s parents could be rendered homeless.” District judge Quentin Purdy however queried that the £26m mentioned by the US authorities could enable “someone to buy somewhere even more lush than Hounslow”. The prosecution said he had made £26m. “So where is it?” asked the judge. “Those may be significant sums for the family but the prosecution complaint is that he had made significant sums.” He granted bail after hearing Sarao had the financial means to provide surety himself in addition to the amounts offered by the family. Although the sum was very significant, said the judge, “this case involves significant sums”. The conditions included that Sarao reside at an address in Hounslow given to the court, be subjected to an electronic curfew from 11pm-4am, and not access the internet “for any purpose”, because that, said the judge, “might upset the Americans, to put it mildly”. In addition his passport has been seized, and his parents must voluntarily surrender theirs. “They can’t be compelled to but it is a condition of your bail that they do,” said the judge. “You are significantly less likely to flee if your parents are unable to move from this jurisdiction,” he said. Related: The 2010 'flash crash': how it unfolded Sarao must also report to the local police station three times a week, and not travel outside England or Wales. He will not be released from custody until the money has been lodged. Addressing him, Purdy said: “I suspect the last 24 hours or less have been somewhat traumatic for you. But you now know the US seek your extradition on very serious charges.” He added that Sarao faces a fine, imprisonment, or both if he breached bail conditions. The US Commodity Futures Trading Commission (CFTC) released details of civil charges against Sarao and his company alleging market manipulation over five years, and as recently as 6 April. Its director of enforcement, Aitan Goelman, said: “Protecting the integrity and stability of the US futures markets is critical to ensuring a properly functioning financial system. Sarao is alleged to have changed his orders on the day of the flash crash more than 19,000 times before cancelling them, and is said to have made profits of more than $820,000 during a day’s trading. The DoJ said: “By allegedly placing multiple, simultaneous, large-volume sell orders at different price points – a technique known as ‘layering’ – Sarao created the appearance of substantial supply in the market … When prices fell as a result of this activity, Sarao allegedly sold futures contracts only to buy them back at a lower price.” The case was adjourned until 26 May, and a preliminary hearing has been set for 18 August. A ‘bright kid’ from the suburbs Sarao’s parents’ home in Hounslow, from which the trading allegedly took place, has a neatly kept front garden with a lawn ringed with flowerbeds, and net curtains hang in the windows. But neighbours said on Wednesday they had not seen Sarao at the house for some time. HS Johal, 55, said: “He moved here 25 years ago. I know his parents but I haven’t seen him for a long time here. I don’t know if he lives here anymore. “Such a nice family, his parents are such a nice family. It shocked me last night when I heard the news.” Asked if he had seen any signs of wealth, Johal pointed out a green Vauxhall Corsa as the parents’ car. “That’s what I’m saying, we heard this news. Somebody [like that] should be showing a Mercedes or BMW.” He questioned whether Sarao’s parents knew what was going on, saying: “They are not very educated. We come from India all of us. Maybe they didn’t know.” Another neighbour, Anil Puri, 41, a web designer, said he had known Sarao when they were children. Sarao had later studied at Brunel University, in west London. “He was a normal kid. He was a happy kid, he was loud. I got on with him. He was the youngest but for his age he was loud. “They weren’t born there, they moved here in the early 1980s. I remember them up to the late 80s, 90s. I went off to uni and that’s when we lost contact. He was a friendly kid. I thought he was a bit sweet. He was a bright kid. He definitely had potential, you could see that.” Atif Mahmood, 36, who works at Heathrow airport, said he had never seen Sarao but knew his parents. “I thought they only had one son. I’ll be honest with you, I’ve never seen that guy. “They (the parents) are nice people, very calm, very quiet. I never thought about anything like this before. Strange world.” At an address in Hounslow for Gurmatpal Dusanjh, listed as Sarao’s company secretary, a resident confirmed he was the landlord. A neighbour, Ashu Mehta, 45, said: “He used to live there. A Polish couple live there now. “Before, the family [Dusanjh and his parents] used to live there. The son got married and the parents move. He used to live there with his wife and two kids. They just rent this place after the young couple had a good offer from Dubai, and now he’s there.” |