A London-based trader on Wednesday became the second person convicted of criminally spoofing U.S. futures markets, after he pleaded guilty to federal charges that he contributed to Wall Street's 2010 "flash crash" by using the manipulative trading practice.
Navinder Sarao, 37, who traded on the Chicago Mercantile Exchange from his parents' home near London's Heathrow Airport, pleaded guilty to one count each of spoofing and wire fraud as part of an agreement with U.S. prosecutors.
Separately, the U.S. Commodity Futures Trading Commission said it was seeking more than $38 million in monetary sanctions from Sarao and a permanent trading ban against him as part of the deal.
Wearing an orange penal jumpsuit during his first appearance in a U.S. court, Sarao acknowledged that he would pay the U.S. government $12.9 million he earned in profits from illegal trading. He told U.S. District Court Judge Virginia Kendall that he understood the terms of the plea deal.
Kendall said sentencing guidelines call for him to be jailed for 78 to 97 months. The maximum possible jail term for the crimes is 30 years.
Prosecutors alleged that Sarao used a modified computer program to "spoof" E-mini S&P 500 futures by generating large sell orders that pushed down prices. He then canceled the trades and bought the contracts at the lower prices, they said.
Prosecutors said his actions contributed to market instability that led to the flash crash on May 6, 2010, when the Dow Jones industrial average briefly plunged more than 1,000 points, temporarily wiping out nearly $1 trillion in market value.
"Sarao abused sophisticated technology to make a quick profit, and jeopardized the integrity of U.S. financial markets," said Assistant U.S. Attorney General Leslie Caldwell.