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U.S. Recommends No Jail Time for Flash Crash Trader

Liam Vaughan

(Bloomberg) -- Navinder Singh Sarao, the British trader blamed for helping cause the 2010 Flash Crash from his bedroom, should serve no additional jail time, U.S. authorities said in a recommendation before his Jan. 28 sentencing in Chicago.

The government cited Sarao’s “extraordinary cooperation,” his autism diagnosis and the fact that he lost most of the 45 million pounds ($58.5 million) he made trading to fraudsters, according to a memo filed with the court Tuesday. He spent four months in a London jail, and the Justice Department said an additional term term wouldn’t deter other traders, and would pose serious risks to the 41-year-old’s mental health.

“For the foregoing reasons, the government respectfully recommends that this court depart significantly below the advisory sentencing guidelines range,” prosecutor Michael O’Neill wrote. “Specifically, the government agrees with the probation officer and the defendant that a sentence of time served would be appropriate.”

The U.K. citizen was arrested in 2015 for contributing to the volatility of May 6, 2010, when markets dropped 5% in a 5-minute period, earning him the moniker the ‘Flash Crash Trader.’ For five years starting in 2009, he spoofed U.S. futures markets, including using a software program he designed himself called the NAVTRader. He was extradited to the U.S. where he pleaded guilty in November 2016 to spoofing and wire fraud.

Since then, Sarao has been working with the government on building cases against other market cheats. Unusually, he was allowed to return to the U.K. during his cooperation. He spent days with prosecutors in London, going through videos he’d made and schooling the CFTC, the DOJ and the FBI on the world of high-frequency trading and how to identify market cheats.

Spoofing involves placing and then quickly canceling orders in a bid to deceive other traders about supply and demand and therefore hopefully move the market.

“The defendant’s keen insights and explanations regarding both general and specific patterns of deceptive and manipulative trading have illuminated the government’s understanding of similar spoofing,” O’Neill wrote. “As a result, he has substantially assisted and informed the government’s nationwide efforts to detect, investigate, and prosecute these crimes.”

Last year, he also testified against his former programmer, Jitesh Thakkar, who was charged with conspiring with Sarao to spoof the market. Thakkar was acquitted at trial.

Beyond his cooperation, the government pointed to the fact that Sarao barely touched the money he made as further reason to treat him leniently.

“The defendant clearly was not motivated by money, greed, or any desire for a lavish lifestyle,” O’Neill said. “His only significant purchase was a 5,000 pound car. Of his remaining trading profits, the defendant lost over 40 million pounds to three apparently fraudulent investment schemes.”

Sarao continues to live in his parents’ house in the London suburb of Hounslow, where he sleeps “in a child-like bedroom that includes multiple stuffed animals” and “uses coupons to buy food at McDonald’s,” the Justice Department wrote. He has been diagnosed with autism, which a psychologist described as “both a disability...and a talent.”

The final decision on Sarao’s sentencing will be made Jan. 28 by the judge presiding over the case in Chicago. The government originally recommended a custodial sentence of between 78 and 97 months.

To contact the reporter on this story: Liam Vaughan in London at lvaughan6@bloomberg.net

To contact the editors responsible for this story: Christopher Elser at celser@bloomberg.net, Ambereen Choudhury

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