Accused trader's 'night in custody'
A British financial trader accused of helping to trigger a multi-billion dollar US stock market crash from the home he shares with his parents is thought to have spent the night in custody.
Navinder Singh Sarao, 36, was arrested at the request of US authorities over the 2010 Wall Street "flash crash", which he allegedly helped cause from their semi-detached house 3,500 miles away in Hounslow, west London.
He is facing 22 charges including wire fraud, commodities fraud and market manipulation which carry sentences totalling a maximum of 380 years.
The US Justice Department claims Sarao and his company, Nav Sarao Futures Limited, made £26 million (40 million dollars) illegally over five years.
In court papers lodged in America, it is alleged Sarao claimed he told US regulators to "kiss my ass" in May 2010 after they wrote to him telling him his orders must be for "bona fide transactions".
British-born Sarao, a former bank worker and Brunel University student, told a court yesterday he would fight plans to extradite him to America.
Against prosecutors' wishes, he was granted bail at Westminster Magistrates Court in London with conditions which include him providing a security of £5 million - the amount he has in his trading account, of which £4.7 million is a loan - along with a security of £50,000 from his parents, which they would lose if he failed to answer bail without good cause.
District Judge Quentin Purdy said Sarao's bail conditions included him living and sleeping at his home address with an electronic tag monitoring his curfew from 11pm to 4am, surrendering his passport and the passports of his parents, reporting to a police station three times a week, not using the internet and not attempting to leave England or Wales.
Judge Purdy added that Sarao would not be released until his bail conditions were met and it is thought he remained in custody overnight after being taken from the court in a prison van.
Sarao, who was arrested on Tuesday at his home by officers from Scotland Yard's extradition unit on behalf of US authorities, faces 22 charges in the state of Illinois, prosecutor Aaron Watkins told the court.
They include 10 counts of commodities fraud, each of which carry a sentence of 25 years and a single count of wire fraud, which carries a sentence of 20 years. He also faces 10 counts of commodities manipulation and attempted commodities manipulation, and one count of "spoofing" - a practice of bidding or offering with the intent to cancel the bid or offer before execution - with each charge carrying a maximum sentence of 10 years.
Mr Watkins said: "During the relevant time period, which was from June 2009 to April 2014, the defendant was a futures trader operating from his domestic residence here in the UK, trading primarily through a company he set up.
"He has committed these crimes over a period of time.
"It is said he was asked to desist from these activities by the US authorities but failed to do so, knowing it was wrong. The figure (the US) are saying in their request is to the value of £26 million - 40 million dollars."
Sarao's defence lawyer Joel Smith told the court that criminality was "not accepted in this case".
"This is a matter that has come as something of a bolt from the blue for Mr Sarao," he said.
Sarao is accused of using an "automated trading programme" to manipulate the market for futures contracts on the Chicago Mercantile Exchange.
His alleged manipulation earned him significant profits and contributed to a major drop in the US stock market on May 6 2010 which came to be known as the "Flash Crash", US prosecutors have said.
Sarao is accused of placing multiple orders before cancelling them without executing them, causing prices to fall.
US prosecutors claim that when the prices fell, Sarao then sold futures contracts, only to buy them back at a lower price. Conversely, when the market moved back up as the activity ceased, Sarao allegedly bought contracts, only to sell them at a higher price, the US Justice Department said.
The flash crash saw the Dow Jones Industrial Average plunge 600 points in five minutes, causing tens of billions of pounds to be wiped off the value of US shares.
Sarao - who has two brothers who work as an optician and an IT consultant - will next appear at Westminster Magistrates' Court for a review hearing on May 26, before a provisional two-day hearing on August 18 and 19.
Two police officers were seen entering Sarao's home, a semi-detached house in Clairvale Road, Hounslow, yesterday.
Nick Leeson, a rogue trader who brought down Barings Bank, Britain's oldest investment bank, said Sarao might be being used as a scapegoat by the US authorities.
He told LBC Radio: "I think he is surrounded by more uncertainty than he has ever felt in his life, and it is very difficult to work out the way forward.
"Events are now controlling you, and he'll be very, very scared.
"The story doesn't entirely ring true for me at the moment. It looks maybe that some of the trades that he initiated were trigger points and they have set in motion a series of events that have led the market to fall so swiftly.
"We are talking about a young trader operating out of his mum and dad's house in Hounslow and he is effectively being charged with forcing around the biggest stock market in the world, going up against some of the biggest investment banks that exist.
"It just doesn't ring true. I hate to jump to conclusions, but is he a scapegoat?"
He added: "It's just very difficult to see how somebody so small has done something so big."