Navinder Sarao: ‘Flash Crash’ Trader’s Extradition Appeal Adjourned

29 09 2015

Like Tom Hayes who got burned for benchmark rigging – but is appealing both his conviction and his sentence – Navinder Singh Sarao also suffers from Asperger’s Syndrome (autism). People like them only see the world in black and white and are unable to see shades of grey. Hayes got 14 years which seems to be disproportionate given that UBS had distributed a manual on rigging LIBOR. But he managed to play the Serious Fraud Office and achieved his main objective, i.e. to dodge extradition to the US. Sarao faces a potential sentence in the US, on 22 counts, which may be as long as 380 years’ imprisonment. The charges against Sarao include wire fraud, commodities fraud, commodity price manipulation and attempted price manipulation. He is charged with using his trading algorithm to spoof markets. After being granted bail in August he got his second lucky break and his extradition hearing was adjourned for four months because of changes, which seek to vary the start date of the allegation of the criminal activity by six months, in the charges levelled at him. Sarao was arrested on 21 April 2015. The US authorities, led by the Department of Justice and the Commodities Futures Trading Commission (CFTC) believe that Sarao is a malevolent individual.

But then again the Americans are also still running Guantánamo Bay despite the Obama administration’s promise to close the prison which Lord Steyn famously described by as a “legal black hole”: see post on Shaker Aamer’s return after 14 long years of being held there without charge. Because he does not have a spouse or a child, Sarao was initially refused bail because of posing a “quintessential flight risk” but was finally released on 14 August 2015 by Westminster magistrates’ court when his bail was reduced from £5 million to £50,000. His extradition appeal was due to be heard this month. Hitherto attempts to postpone the hearing scheduled on 25 September 2015 were unsuccessful: see posts here and here. The reasons for postponing the extradition hearing are related to the fact that the US authorities are pressing further charges against him and want to back date his criminal activity by six months to January 2009. Sarao told that Westminster magistrates’ court that he did not consent to being extradited to America.

It is alleged that he made about $879,000 on the day of the flash crash. According to Mark Summers who represents the US government said that the new charges relate to some email sent by Sarao and not to his trading activity. “They bring back the start date of the allegations of the criminal activity by six months. They include new factual allegations,” Summers reportedly told the court. The hearing was adjourned because his counsel James Lewis QC had an accident on his way to court and hurt his ankle and his extradition hearing scheduled on 25 September 2015 was pushed forward to 4-5 February 2016 by judge Quentin Purdy. Notably, Sarao is said to be in a “fragile” mental state and his suffering from Asperger’s Syndrome amplifies his predicament – it “adds the stress and strain on him,” his lawyer Joel Smith reportedly said.

US authorities contend that the 36-year-old Sarao illegally manipulated the stock market and caused the $500 billion (arguably even $1 trillion) market “flash crash” of May 2010 when the Dow Jones Industrial Average plummeted 600 points in five minutes. During the rout, the market, which rebounded in a matter of minutes, lost almost a tenth of its value. The fresh theory that Sarao single-handedly caused the flash crash is a radical departure from the regulators’ previous position that the crash did not involve manipulation and occurred because of a big sale of contracts from a large trader. As a result of the momentary wipeout, which only heightened existing anxieties about the financial crisis, the US wants to extradite Sarao to face American justice. The self-confessed insomniac is accused of profiteering illegally to the tune of £26.7 ($40 million); which he siphoned off to companies he had incorporated in the Caribbean (one of them traded as “Nav Sarao Milking Markets”).

An analysis, commissioned by the CFTC, of Sarao’s trading activity on twelve particular days revealed that using his trading programme he cancelled twice as many times (99 percent) as other traders (48 percent). However, he defended himself by telling the UK financial watchdog that he did not want to be picked off by bigger high-frequency trading (HFT) traders and therefore his trading software was custom built by Edge Financial to cloak his orders so that the front running HFT crew would be unable to identify him.

In Flash Boys: Cracking The Money Code, the impressive Michael Lewis argues that the flash crash occurred “for no obvious reason”. The market may have plummeted inexplicably but it was equally bizarre that:

A few minutes later like a drunk trying to pretend he hadn’t knocked over the fishbowl and killed the pet goldfish, it bounced right back up to where it was before.

The event was trivial if one wasn’t watching “unless, of course, you had placed orders in the markets to buy or sell certain stocks.” For Lewis, the report of the Securities and Exchange Commission – linking the episode on a large sell order of futures contracts by “an obscure Kansas City mutual fund” – was “only true by accident” because “the regulators did not possess the information they needed to understand the stock market.” So applying the theory proposed by Michael Lewis, it may well be that Sarao has a case to answer in America.

However, his legal team insists that a “lone wolf” could not have crashed the market. Will lady luck smile upon him in the future? We shall have to wait and see.



6 responses

14 10 2015
Former Rogue UBS Trader Kweku Adoboli Loses Deportation Appeal | Global Corporate Law

[…] will be interesting to see how far Sarao gets with his extradition appeal? He was luckily able to have it adjourned from September 2015 to January […]

14 10 2015
Former Rogue UBS Trader Kweku Adoboli Loses Deportation Appeal | United Kingdom Immigration Law Blog

[…] will be interesting to see how far Sarao gets with his extradition appeal? He was luckily able to have it adjourned from September 2015 to January […]

19 11 2015
EURIBOR Manipulation: SFO Charges First Individuals | Global Corporate Law

[…] Tom Hayes and Nav Sarao, Allen and Conti waived extradition to fight charges of conspiracy and wire fraud in America and […]

29 12 2015
Tom Hayes: LIBOR Fraudster’s Sentence Reduced, But Conviction Upheld | Global Corporate Law

[…] harder had he failed in using dodgy tactics to avoid being extradited (compare him for instance to Nav Sarao, the flash crash trader, who faces 380 years’ imprisonment for multiple counts of wire fraud and […]

23 03 2016

Ruling of District Judge Purdy dated 23/3/16. Extradition Act 2003.

Issues: (i) Extradition Offence: S.137. (ii) Forum: S.83A. (iii) Private & family life: S.87 (3) & Article 8 & (iv) abuse of process i.e. an allegedly wilfully materially misleading extradition Request by USA. Background: alleged “spoofing” or improper & dishonest market manipulation of Chicago Mercantile Exchange by adapted computer software as inter alia contributed to the so called “flash crash” (6/5/10) & an overall illegal gain of $40 million between 2009-2014.

28 03 2016
Navinder Sarao: ‘Flash Crash’ Trader’s Extradition Request Upheld | Global Corporate Law

[…] index, which sank by five percent on 6 May 2010 only to rebound 20 minutes later. Sarao’s appeal had been adjourned in September […]

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