Crime and Punishment

Judge approves US extradition of 'flash crash' trader

'Flash crash' faces US extradition

The high-frequency futures trader accused of being behind the May 2010 stock market "flash crash" will be extradited to the U.S., a British judge has ruled.

First arrested in April 2015, the U.S. Justice Department charged Navinder Singh Sarao, 36, of west London, has been charged with wire fraud, commodities fraud and manipulation, and one count of "spoofing"—when a trader places a bid or offer with the intent of cancelling it before execution.

Sarao denies any wrongdoing and his defense team will appeal against Wednesday's decision, according to Reuters.

In September 2015, Sarao's lawyers argued against his extradition on the grounds of his recently diagnosed severe Asperger's Syndrome, a form of autism which often affects people with high intelligence, and that his current "mental health was fragile. They also argued that Sarao's conduct, as it is described in U.S. court filings, does not amount to a criminal offence in the U.K. The latter was seen as a key focus for the hearing on Wednesday which decided on his extradition.

380 years in jail?

A woman walks past the New York Stock Exchange on May 6, 2010, the day of the "Flash Crash."
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Navinder Singh Sarao, a British trader charged over his role in the 2010 U.S. flash crash, leaves Westminster Magistrates' Court after losing a bid to delay extradition proceedings in London, U.K., on Friday, Aug. 28, 2015. Sarao asked a London judge for more time to prepare an expert report on trading, but the judge rejected the request, saying the issue was irrelevant to the question of extradition.
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A woman walks past the New York Stock Exchange on May 6, 2010, the day of the "Flash Crash."
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A trader reacts to the Flash Crash on May 6, 2010.
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If forced to go to the U.S., he would face 22 counts of fraud and commodity manipulation, carrying a maximum of 380 years in jail. The U.S. is generally viewed as a harsher environment for white collar crime than the U.K.

"Sarao's ordeal has highlighted deep flaws within the regulation of the financial markets," Andrew Katzen, partner at Hickman & Rose, said in an emailed statement.

He explained that a law against spoofing only came into force in the U.S. in 2010, and the first time it was used was in November of last year. In the U.K. meanwhile, the practice remains a purely regulatory issue, he said.

"This goes some way to explaining why the usually hawkish U.S. authorities were so slow to act. It took them five years to bring any kind of formal sanction against Sarao, who was happily trading up until as recently as 2014. Small wonder that he is widely thought to be scapegoat," he said.

At earlier pretrial hearings, prosecuting lawyers argued that Sarao persisted with his activities despite calls to cease from the U.S. authorities, and that the spoof trades could have made him £26 million ($40 million) over four years. Rather than snapping up a luxury Mayfair bachelor pad, the pretrial hearings also highlighted that Sarao still lived with his parents in a three-bedroom house on a nondescript street in suburban London.

A form of 'spoofing'

Navinder Singh Sarao leaves Westminster Magistrates Court on August 14, 2015 in London, England. Navinder Singh Sarao, a British financial trader accused of helping trigger a multibillion-dollar US stock market crash, has been granted bail while he fights extradition to America.
Getty Images

He was initially granted conditional bail by Westminster Magistrates' Court last April, which was set at £5 million ($7.5 million). However, he saw a drawn out battle over his surety with a judge telling him that he posed a "clear flight risk."

Sarao's trades allegedly used a "layering" strategy—a form of spoofing where "a trader places multiple, bogus orders that the trader does not intend to have executed." These fake orders could manipulate a price by tricking other trading participants into believing there is either increased supply or demand for a security.

Sarao's case is seen as a possible precedent for future ones and stands out because it is a criminal rather than civil case. It was also seen as a test of U.S. authorities' ability to successfully win a large market manipulation case.

—CNBC's Catherine Boyle contributed to this article.

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