'Flash crash’ trader sentenced to one year home incarceration

The day trader charged with triggering a trillion-dollar “flash crash” that briefly caused havoc on Wall Street in 2010 was sentenced to one year of home incarceration on Tuesday by a Chicago court.

Navinder Sarao, who traded from a bedroom in his parents’ west London home, was arrested in 2015 and pleaded guilty to illegally manipulating the stock markets with trades that led to one of the most dramatic crashes in history.

The sentence was immediately thrown into doubt after lawyers said it would be unenforceable outside the US. A recess was called to discuss the situation and the judge was satisfied Sarao would only be allowed to leave the house in a handful of circumstances. “I’m not giving him leave to go to the gym,” said Judge Virginia Kendall of the northern district of Illinois.

The sentence means Sarao will have served no prison time beyond the four months he spent in UK prison in 2015 before his release on bail.

US prosecutors as well as his own legal team had called for leniency. US Department of Justice (DoJ) lawyers called Sarao – who has been diagnosed with Asperger’s syndrome, a form of autism – “a rare, even unique case and individual”. They praised his cooperation in other cases and with building their understanding of how others had gamed the markets.

Dressed in a black suit and brown shoes, Sarao told the court he had been addicted to trading and that while he made “more money than I could ever have imagined” that “it didn’t make me happy”.

He told Kendall that he had found God and would never do anything illegal again. Before passing sentence, Kendall told Sarao that his contrition “doesn’t impact the seriousness of what happened back in 2010”.

The DoJ initially charged Sarao with 22 counts of fraud, including “spoofing” or placing fake trades, in a five-year scheme that included his role in the 6 May 2010 “flash crash”, when the Dow Jones Industrial Average plunged 600 points in five minutes. Most of those losses were regained in 20 minutes.

He was extradited to the US in 2016 and all but two charges were eventually dropped but Sarao, 41, had faced between six and a half and eight years imprisonment, according to US sentencing guidelines, in addition to any fines and restitution the court might have imposed.

But because of what prosecutors termed “the defendant’s extraordinary cooperation with the government” – which included spells testifying in other cases when the anxiety caused Sarao days of insomnia – it was recommended earlier this month that he serve no further prison time.

The DoJ alleged that Sarao earned more than £45m ($70m) in trading profits from his scheme – of which at least “$12.8m was attributable to his fraud and spoofing scheme”.

However, he seemed to care little for the money – maintaining an extremely frugal existence revolving around “a childlike bedroom that includes multiple stuffed animals” in his parents’ home in Hounslow, travelling to work late so that he could buy off-peak tickets and using coupons to buy food from McDonald’s.

In its sentencing recommendation published earlier this month, the DoJ said: “[Sarao’s] only significant purchase was a £5,000 car. Of his remaining trading profits, the defendant lost over £40m to three apparently fraudulent investment schemes. The defendant has since surrendered his only remaining trading profits – approximately $7.6m (which the defendant has represented to be and the government believes to be his only liquid assets) to the United States in partial satisfaction of the $12.8m forfeiture order in this case.”

Sarao’s “utter lack of significant personal expenditures or extravagance sheds light on the nature and circumstances of his offense because they strongly indicate that he was not motivated by any greed whatsoever”, US prosecutors concluded.

Instead of greed, the trader seems to have been motivated by viewing trading through the prism of his autism, which was described as “both a disability … and a talent”.

Sarao’s lawyer, Dechert partner Roger Burlingame, said: “We are grateful to the judge for her decision and the government for its recommendation. Nav has been living under the threat of a very long sentence for almost five years. He is overjoyed to put this behind him, go home, and move on with his life.”