Sarao's Orders in ‘Flash Crash’ Were Real, Attorney Says

  • Sarao fighting extradition to U.S. in market manipulation case
  • His proximity to flash crash, if any, is remote, Lewis says

Navinder Singh Sarao, accused of market manipulation that contributed to the 2010 Flash Crash, placed real orders and shouldn’t be extradited to the U.S. for prosecution, according to documents presented to a London court by his attorney.

Sarao’s trades were “real orders that exposed the defendant to the real possibility of trading at the prices at which he posted his orders,” his lawyer James Lewis said in legal documents shown at the hearing Thursday.

Navinder Singh Sarao, center, arrives at Westminster Magistrates’ Court.
Navinder Singh Sarao, center, arrives at Westminster Magistrates’ Court.
Photographer: Luke MacGregor/Bloomberg

The Briton is accused of manipulating Standard & Poor’s 500 Index futures in May 2010 and helping to cause the Dow Jones Industrial Average to plunge almost 1,000 points. Experts are still debating the cause of the fluctuation, and Sarao is arguing that his actions were not a crime in the U.K. and that any trial should be held in this country.

“The defendant’s proximity to the flash crash, if any, is remote,” Lewis said in the documents.

Sarao’s behavior came to light in April 2015, when he was arrested at his home in the London borough of Hounslow. U.S. prosecutors say that on the day of the flash crash he placed orders amounting to about $200 million that the market would fall, a trade that represented between 20 percent to 29 percent of all sell orders at the time. The orders were then replaced or modified 19,000 times before being canceled in the afternoon.

Prosecutors allege he made $40 million over four years by spoofing CME Group Inc.’s stock futures market. Spoofing involves placing orders with no real intent to execute them in an effort to fool other traders into buying or selling.

Sarao’s lawyers called on an expert witness, former U.S. Securities and Exchange Commission Chief Economist Larry Harris, to explain various trading strategies and why Sarao’s trading may not have been spoofing. Harris appeared in court via video link from California. He said it’s plausible Sarao was using pegged limit orders-- orders that track the best bid and offer prices-- as a legitimate trading strategy, which can sometimes look like spoofing.

Mark Summers, a lawyer for the prosecution, contended a jury would "reasonably conclude" Sarao’s trading "was market manipulation," and that Harris’s assertions were made "without actually examining the data."

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