A British day trader has pleaded guilty to spoofing and wire fraud involved the 2010 Flash Crash. Navinder Singh Sarao was accused of making $40M while spoofing the stock futures market of CME Group Inc. (NASDAQ: CME) for more than five years. He also will forfeit $12.9M of the ill-gotten gains that he made from trading. Sarao is facing a maximum of 30 years in prison. It was during the 2010 Flash Crash that a trading frenzy briefly took down nearly $1 trillion from American equities.
To face the 22 criminal charges against him for market manipulation and fraud, Sarao had to be extradited from the United Kingdom to the United States. US prosecutors accused him of rigging the futures on the S & P 500 Index.
Spoofing involves manipulating prices by placing trade orders but with no plans of executing them. The purpose is to send prices moving in one direction but then canceling the trades prior to execution in order to make money off the prices going back to where they originally were before the manipulation.
Sarao’s defense team tried to argue that his activities aren’t illegal in the UK and because he is a British citizen, his criminal trial should take place there. However, prosecutors argued that the majority of damage occurred on a US trading platform and that it was this country’s market, its companies, and its citizens that suffered as a result of Sarao’s alleged actions.
It was just last year that a Chicago jury convicted Panther Energy Trading LLC head Michael Coscia of commodities fraud and spoofing in the first trial since this type of trading was made illegal under the 2010 Dodd-Frank Act. Prosecutors said that Coscia illegally made $1.4M over three months by making unusually big orders that he never planned to execute and then placing smaller trades on the other side.
In July, Coscia was sentenced to three years behind bars. He had to pay a $3M related regulatory fine.
Last month, the Commodities Futures Trading Commission also reached an agreement in principal with Igor Oystacher and his 3Red Trading LLC over spoofing charges. Oystacher was scheduled to go to trial in January.
The CFTC sued Oystacher last year alleging that he made unwanted purchase and sell orders in several contract markets, including those for natural gas, copper, and crude oil but that he never intended to make the orders. Instead, he allegedly used them to get similar offers onto the market so he could profit from the price changes.
Also last year, the Intercontinental Exchange Inc. fined Oystacher $125K for spoofing involving futures contracts on the Russell 200 Index. Just months before that, CME Group fined him $150K over spoofing allegations.
For many years, our securities law firm has worked with high net worth individual investors and institutional investors, as well as retail investors, to try to recoup their losses sustained from fraud caused by the negligence, carelessness, or wrongdoing of others. Please contact The SSEK Partners Group so we can provide you with a free case consultation to help you explore your legal options.
British “Flash Crash” Trader Pleads Guilty to Fraud in US, Fortune, November 13, 2016
CFTC Settling Suit Against 3Red’s Accused Spoofer Oystacher, Bloomberg, October 19, 2016
The CFTC’s Complaint Against Oystacher and 3Red, CFTC (PDF)
CFTC Sues Chicago Trader and 3Red Trading for Spoofing, Stockbroker Fraud Blog, October 25, 2015