More than two years ago, the British futures trader blamed for the 2010 U.S. stock market drop known as the “Flash Crash” appeared inside Chicago’s federal courthouse and admitted to his financial mischief with a surprise guilty plea.
On that day, back in November 2016, a judge agreed to let Navinder Sarao return home overseas — with a promise to help the U.S. government before he is sentenced.
On Monday, Sarao returned to the Dirksen Federal Courthouse in the Loop to make good on that promise, taking the witness stand against Jitesh Thakkar, a software executive from Naperville accused of helping Sarao commit his crimes.
Dressed in a red sweater, Sarao explained to jurors in a matter-of-fact tone how he managed to make roughly $40 million as a trader between 2009 and 2015. He said he spent “most days” during that time manipulating the markets from London. The feds have previously linked his misdeeds to the May 6, 2010, “Flash Crash,” which sent the Dow Jones Industrial Average plummeting 600 points in 5 minutes.
Sarao said he has been diagnosed with Asperger’s syndrome and he said it is difficult for him to make eye contact with people. He looked down toward the floor as he answered questions from a prosecutor.
The onetime trader explained how he placed bogus orders for E-Mini S&P 500 futures contracts on the Chicago Mercantile Exchange, hoping to “put out a false sense of supply” and depressing value. He then placed legitimate orders to take advantage of the artificial values, and he canceled the bogus orders.
The illegal practice is known as “spoofing.”
Despite making millions in his heyday, Sarao told the jurors he has since gone broke.
“In fact,” he said, “I’m in considerable debt.”
Prosecutors say Thakkar, founder of Edge Financial Technologies Inc., created software to help Sarao spoof the market. Crucially, the program featured a “Back of the Book” function, which lowered the risk that Sarao’s bogus orders would actually go through before Sarao could cancel them. The feds say Thakkar was paid $24,000 for the software and retained the rights to the program.
Thakkar is charged with spoofing and a spoofing conspiracy.
But Thakkar’s attorney, Renato Mariotti, told the jury Thakkar did not even build the software Sarao used. One of his employees did. Mariotti compared it to a cell phone salesman facing trial after selling a phone that was later used in a drug crime.
“Welcome to that world, ladies and gentlemen,” Mariotti said.
Mariotti is the former federal prosecutor who helped win a first-of-its-kind spoofing conviction in Chicago back in 2015.
Meanwhile, Sarao has admitted to his own wire fraud and spoofing charges. He faces a maximum of 30 years in prison but he is hoping to catch a break by testifying for the government.
It’s not clear when Sarao will finally learn his fate. His sentencing hearing has still not been scheduled.