Indian-origin futures trader pleads guilty in $1tn 'flash crash' case

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 cancelled the trades and bought the contracts at the lower prices, they said. Photograph:( AFP )

Reuters Chicago, IL, United States Nov 10, 2016, 02.54 AM (IST)

London-based, Indian-origin futures trader Navinder Sarao pleaded guilty on Wednesday in the US for using manipulative trading practices that helped trigger Wall Street’s 2010 $1 trillion “flash crash”.

Sarao, 37, pleaded guilty to one count each of spoofing and wire fraud.

After pleading guilty to federal charges, US District Court judge Virginia Kendall said he faces up to 30 years in prison.

Sarao traded futures on the Chicago Mercantile Exchange from his parents’ home in west London.

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 cancelled the trades and bought the contracts at the lower prices, they said.

US authorities say his actions contributed to the market instability that led to the flash crash in 2010. The crash wiped nearly $1trillion off the value of US shares.

After losing a legal battle against his extradition from the UK, he was sent to the US, where “spoofing” is an offence, to face federal charges.

“Spoofing” is the practice of buying or selling with the intent to cancel the transaction before execution. (It is not a crime in the UK.) 

Sarao agreed to pay the US government $12.9 million he earned in profits from his illegal trading. He made more than £30 million in less than five years.

He will be released on a $750,000 bond and be allowed to return to the UK.

(WION with inputs from Reuters)