It is the 22nd of January 2020

Free At Last: US Recommends No Jail Time For 'Flash Crash' Scapegoat Nat Sarao

Free At Last: US Recommends No Jail Time For 'Flash Crash' Scapegoat Nat Sarao

After five years of wrangling with the legal systems in the US and UK, it looks like the 'Hound of Hounslow" is finally about to walk free, after spending three years in an American jail cell.

Financial News London reports that Navinder Singh Sarao - the London day trader who was arrested in 2015 and accused of contributing to the May 2010 'flash crash', a trillion-dollar drop in US equity benchmarks that lasted just a few minutes in what was at the time the second-biggest intraday point swing in the history of US markets - will likely walk free after his Jan. 28 sentencing in Chicago because prosecutors are recommending a sentence of time served.

Sarao

Sarao, 41, should be shown leniency, US authorities said in the filings with the Illinois Northern District Court, largely due to his "extraordinary" cooperation.

Sarao was living with his parents in West London at the time of his arrest in April 2015. Although not a hacker by trade, he earned - and apparently lost - some £45 million pounds by manipulating markets with a sophisticated computer program of his own design. The program relied on 'spoofing' - a now-prohibited practice that involves placing fraudulent orders, and then cancelling them before execution, with the intention of deliberately manipulating the price of a given security or derivative.

When he was arrested in 2015, many complained that Sarao, who allegedly earned £1 million on the day of the flash crash, was being scapegoated by authorities who refused to deal with the real problem: the rise of HFT firms whose algo-driven "strats" have introduced a new level of rent-seeking into the market.

Sarao faced a trial in the US earlier this year, despite pleading guilty to several charges related to the spoofing back in 2016, the year he was extradited to the US. He was arrested in 2015, a full five years after Sarao's allegedly fraudulent trading.

Sarao's apprehension hasn't stopped flash crashes (they have continued to occur across markets), and the safeguards implemented after the 2010 flash crash failed to prevent future crashes, and in August 2015, the prices of several ETFs went haywire and became unglued from their underlying assets.

He was reportedly bilked out of most of the money he made from his trading scheme, and handed over the rest of the money to the US.

In addition to cooperating in his own case, Sarao also reportedly cooperated in cases that the government has brought against other traders, though the details are somewhat sketchy.

The court also said that Sarao showed few signs of being a greedy person, adding that he "did not use [the money] to live anything approaching an extravagant lifestyle" and that his only purchase was a modestly priced car. This "strongly indicates he was not influenced by greed whatsoever."

Because of all this, the government is recommending a sentence of time served.

That must be a huge relief for Sarao, because at the time of his extradition, he faced a total of up to 380 years in prison.

More recently, prosecutors recommended a sentence of between 78 and 97 months, or between six and a half to seven years and seven months.

Soon, Sarao will be back in his parent's house in West London, surviving - at least for a time - on UK government benefits. According to Bloomberg, which cited court documents, Sarao will continue living in his parents’ house in Hounslow,  where he reportedly sleeps "in a child-like bedroom that includes multiple stuffed animals" and "uses coupons to buy food at McDonald’s." He has been diagnosed with autism, which has been described as "both a disability...and a talent."

Meanwhile, US regulators still expect the public to believe that a single independent trader operating out of a non-collocated, latency fortress in Hounslow is responsible for the flash crash's massive destruction of wealth.

Tyler Durden Wed, 01/15/2020 - 12:45
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