If you thought nothing much happened in Hounslow, you might want to think again. A British man was arrested yesterday at his parent’s west London semi, after American prosecutors accused him of massive securities fraud on the Chicago Mercantile Exchange.
The US Department of Justice has charged 36-year-old Navinder Singh Sarao with contributing to the ‘flash crash’ on 6 May 2010, when the Dow Jones Industrial Average lost hundreds of billions of dollars in five minutes in a 600-point dip, only to rebound again almost immediately after.
It alleges that Sarao used an automated ‘dynamic layering scheme’ to manipulate the price of futures contracts, known affectionately as S&P 500 E-minis. The accusation is that he placed numerous ‘spoof’ sell orders at high volumes in order to offload futures contracts and then buy them back at an artificially lower price.
As the days of traders furiously shouting and thrusting pieces of spittle-drenched paper in each other's faces have given way to the internet age, the room for such market manipulation has undoubtedly increased. Banks have faced huge fines over Libor and forex rigging over the past few years, but the fact is that such things can take place anywhere now. Whether that includes Hounslow will likely be decided by the American courts.
Sarao is also charged under civil law by a US regulator, the Commodities Futures Trading Commission (CFTC), with using the same tactics on ‘over 400 trading days’ over five years, to make a personal profit of over $40m (£27m). The CFTC is seeking ‘permanent injunctive relief, disgorgement, civil monetary penalties, trading suspensions or bans, and payment of costs and fees’, and has obtained an order to freeze Sarao’s assets.
Sarao lives at the house opposite his parents', where his one-man trading business Nav Sarao Futures Limited is based, but now awaits extradition to the US. When the Americans go after someone, they really go after them.