CHICAGO (AP) - A British futures trader pleaded guilty Wednesday during his first U.S. court appearance since helping to trigger a May 6, 2010, “flash crash” from his parents’ suburban London home that wiped tens of billions of dollars off the value of U.S. stocks, rattling investors and leaving many wondering if the market was rigged.
Navinder Singh Sarao, 37, stood in a Chicago courtroom in orange jail garb and with his legs shackled as a judge asked if he understood the consequences of pleading guilty, including that he could face up to 30 years in prison. He leaned into a podium microphone and answered quietly, “Yes, your honor.”
High-frequency traders like Sarao were the focus of author Michael Lewis’ best-selling book “Flash Boys,” which describes how they employed lightning fast programs to buy and sell in milliseconds - scooping up quickly-accumulating profits. Sarao made at least $12.8 million in market-manipulation schemes over several years, court papers say.
Sarao, of Hounslow, United Kingdom, has a talent for mathematics but is socially awkward, defense attorney Roger Burlingame told the court, adding that his client lived in the same room at his parents’ home for most of his life. Sarao was extradited to Chicago early this week after fighting extradition for over a year.
A grand jury indicted him in 2015, citing his manipulation of E-Mini S&P 500 futures contracts on the Chicago Mercantile Exchange. In doing so, it says he helped spark the 2010 “flash crash” when the Dow Jones Industrial Average plunged 600 points in just five minutes before rebounding. Sarao allegedly earned around $900,000 in profit on that one day.
Under a deal with prosecutors, Sarao pleaded guilty to one count of wire fraud and one of spoofing, which refers to bidding with the intent of quickly canceling the bid to manipulate prices. If he cooperates fully with investigators, prosecutors could ask for a prison term below 6½ years. No sentencing date was set.
Initial appearances are usually formalities, where defendants nearly always plead not guilty. So, the revelation Wednesday that Sarao was pleading guilty in an agreement already hammered out with the U.S. government came as a surprise.
Prosecutors asked that the judge agree to release Sarao on a $750,000 bond secured in large part by his parents’ home in Britain, saying his cooperation would be more effective if he was out from behind bars. U.S. District Judge Virginia Kendall agreed only after calling Sarao’s father in the London area from the Chicago courtroom to ask whether he understood he was putting their home at risk if Sarao violates the conditions of release.
Burlingame said Sarao understood he would be “destroying his parents lives” if he violates those conditions, which include that he can return to Britain but only travel from there to the U.S. to meet with federal investigators.
Court documents included emails Sarao sent to a broker weeks after the “flash crash” bragging about how he had just told a Chicago exchange official who questioned his trades “to kiss my” behind. Sarao also defended himself in some emails. In March 2010, he wrote that he executed some trades merely to show a friend “what occurs on the bid side of the market … by the high-frequency geeks.”
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