Flash Trader’s $40 Million Profit Shrouded in Offshore Secrecy

Can Only One Trader Be Responsible for 2010 Flash Crash?

U.S. authorities say Navinder Singh Sarao made a $40 million windfall by manipulating futures prices for years, including on the fateful day in May 2010 when markets took traders for an unforgettable roller-coaster ride.

Accounts filed by his U.K. firm, Nav Sarao Futures Ltd., paint an entirely different picture of a company piling up losses of 32 million pounds ($48 million) from May 2011 through October 2013, according to the most recent figures available.

Sarao’s true financial health is hard to decipher and may not become clear until he’s prosecuted for his alleged crimes. Around the time of the 2010 flash crash, the sudden plunge in U.S. stocks that authorities say Sarao helped cause, he took “significant steps” to protect his wealth, according to a Justice Department complaint unsealed Tuesday.

Those steps included incorporating a company in Nevis, a Caribbean island, in April 2010 named Nav Sarao Milking Markets Ltd. That firm, and another set up by Sarao in Anguilla in 2012, appear to be “part of a tax-avoidance strategy,” the Justice Department said.

A broker of Sarao’s wrote in a December 2012 e-mail that the majority of his funds are offshore and the remaining wealth he has in Nav Sarao Futures is tied up in “complex structures,” according to the Justice Department’s complaint.

Sarao, 36, was arrested in London Tuesday and charged in the U.S. with 22 criminal counts, including fraud and market manipulation. Among the key allegations is that he engaged in spoofing, an illegal practice that involves placing orders and then canceling them to drive prices in a preferred direction.

He appeared in a London court Wednesday to fight an extradition bid by U.S. authorities, a move that could delay the case against him for years. Wearing a long-sleeved yellow t-shirt and white sweatpants, Sarao told a judge he wouldn’t consent to the U.S. request. He was granted conditional bail, set at 5 million pounds.

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