Navinder Sarao: ‘Flash Crash’ Trader’s Extradition Request Upheld

The Government of the United States of America v Navinder Singh Sarao (23 March 2016)

The case of Nav Sarao, the “hound of Hounslow” who faces a potential sentence of 380 years’ imprisonment on 22 counts in the US, has inflamed emotions and commentators have expressed extreme sympathy with the rogue trader who is considered to be the main culprit behind the “flash crash” of 6 May 2010. The disproportionate nature of his predicament is clearly illustrated by the fact that if extradited and punished in America, Sarao may well receive a harsher sentence than Serbian war criminal Radovan Karadic who got 40 years for crimes against humanity and genocide but will enjoy the right to a lengthy appeals process. It has been argued that Sarao had to be caged because he discovered a way to beat the HFTs at their own game. At the time of his arrest, senior traders even made public statements about footing his legal bill. Seldom has a corporate crime case aroused such a passionate response. Fellow traders dubbed Sarao “our spoofing hero” and the case against him was labelled “ridiculous”. Yet in the Westminster magistrates’ court judge Quentin Purdy disagreed and found that Sarao was extraditable to the US on the charges levelled against him. On the other hand, in making factual findings in the case, judge Purdy found that the downturn in the market was not attributable to a single event and the cause of the flash crash “cannot on any view be laid wholly or mostly at Navinder Sarao’s door” because even though he was active on 6 May 2010 the date “is only a single trading day in over 400 relied upon by the prosecution.”

Against this, the Commodities Trading Futures Commission accuses the Brit of exacerbating the flash crash and claims he “was at least significantly responsible for the order imbalances” in the derivatives market which affected stock markets to make matters worse on the day. The judge found that if found guilty of market abuse under UK law, Sarao’s activity would result in a sentence of 12 months’ imprisonment being imposed on him and so the dual criminality test in section 137 of the Extradition Act 2003 was satisfied. He also stressed the importance of the public interest in upholding the controversial UK-US Extradition Treaty. Sarao is accused of engaging in a ferocious campaign to manipulate the price of the E-mini S&P 500 on the Chicago Mercantile Exchange by relying on a variety of exceptionally large, aggressive and persistent spoofing tactics.

The Privilege Judgment

R (on the application of Prudential plc and another) (Appellants) v Special Commissioner of Income Tax and another (Respondents) [2013] UKSC 1

The Supreme Court has spoken on the thorny issue of legal advice privilege (or “LAP”). In sum, the relationship between lawyer and client is sacrosanct and, at least on the initiative of the Court, the ambit of LAP is not extendable to another species of legal advisor. In the provision of legal advice, LAP protects the communications between client and lawyer (acting in a professional capacity). Lord Neuberger of Abbotsbury PSC, Lord Hope of Craighead DPSC, Lord Walker of Gestingthorpe, Lord Mance and Lord Reed JJSC so held by delivering concurring judgments. But the affair was not without disagreement and Lord Clarke and Lord Sumption JJSC have produced their own dissenting judgments.

In the controversial ruling the Court said that even in circumstances where legal advice was imparted by a person who was a qualified person, LAP’s scope would not be extended to communications in connection with advice given by professional people – such as chartered accountants – other than members of the legal profession. It was a really great hearing to watch live online; despite Lord Pannick QC’s valiant efforts, he could not sway the Supreme Court to reverse Mummery, Lloyd and Stanley Burnton LJJ’s judgment [2010] EWCA Civ 1094 in the Court of Appeal when it heard the matter on appeal from Charles J [2009] EWHC 2494 (Admin) who had, of course, dismissed the claim for judicial review before him.

Legal Professional Privilege and Article 8: Prudential Case Live in UK Supreme Court: 5 November – 7 November 2012

Ever since its doors opened for business in October 2009, the UK Supreme Court has ruled on numerous cases related to article 8 of the European Convention on Human Rights. But the instant case is unique. In contrast to the family and private life limbs of article 8, R (on the application of Prudential plc and another) (Appellants) v Special Commissioner of Income Tax and another (Respondents) UKSC 2010/0215 turns on tax, accountancy, the legal profession and the right to respect for correspondence. Lords Neuberger, Hope, Walker, Mance, Clarke, Sumption and Reed JJSC will hear the matter from 5 November until 7 November 2012 (sittings commence on 11:00 AM Monday and 10:30 AM Tuesday – Thursday, Lunch Recess 1:00 – 2:00 PM,  Greenwich Mean Time). Please watch these proceedings live ONLINE HERE. The issue before the court is whether, at common law, legal professional privilege (“LPP”) applies to communications between a client and an accountant seeking and giving legal advice on tax law.

Crucially, LPP is an (almost) absolute rule. It not only entitles clients to refuse to disclose documents or answer questions, but also requires advisers and others to do the same. Hence LPP, which traces its roots to the sixteenth century, creates a real conflict with general public policy that cases should be decided by reference to all available relevant evidence. From Prudential’s perspective the Human Rights Act 1998, applying the ECHR, protects LPP and requires any limitation on LPP to be justified.

Because of the important nature of the case, the Law Society, the General Council of the Bar and the Institute of Chartered Accountants in England and Wales are intervening in the matter as are the Association Internationale pour la Protection de la Propriété Intellectuelle UK Group and the Legal Services Board.