British 'Flash Crash' trader to fight US extradition

LONDON (AFP) - A British man accused of contributing to a US stock crash and making millions in high-frequency trading fraud from his modest London home told a court Wednesday that he would oppose extradition to the United States.

Navinder Singh Sarao, 36, was arrested in the British capital on Tuesday at the request of US authorities, which accuse him of an elaborate scheme to manipulate the futures market using automated software.

US justice officials allege that his trades contributed to the May 2010 "Flash Crash," when US stocks plunged 600 points in five minutes, and over five years earned him and his company US$40 million (S$53.76 million).

At a hearing at Westminster Magistrates' Court, Sarao's lawyer Joel Smith said the allegations had come "as something of a bolt from the blue."

Sarao, who appeared in the dock wearing a yellow sweatshirt and white tracksuit trousers, was asked if he consented to his extradition, to which he replied: "No."

His opposition paves the way for a protracted legal battle, which could last years.

Sarao's company, Nav Sarao Futures Ltd, is headquartered in a suburban house in Hounslow, west London, which is reportedly also his family's home.

Between June 2009 and April 2014, he is accused of placing orders for futures contracts - agreements to buy or sell a specific product or financial instrument in the future - before cancelling them abruptly.

The goal of the practice - known as "spoofing" - is to manipulate the market price, which the trader can then exploit by simultaneously executing other, real trades using automated trading software.

Sarao was trading on a leading futures market, the E-Mini Standard & Poor's 500 futures contracts, which is linked to the Standard & Poor's 500 index of leading shares.

He was allegedly highly active in the period leading up to the "Flash Crash" on May 6, 2010, when the Dow Jones Industrial Average fell by about 600 points in a five-minute span after a big drop in the price of E-Minis.

The US authorities are requesting Sarao's extradition from Britain to face one charge of wire fraud, 10 counts of commodities fraud, 10 counts of commodities manipulation, and one count of "spoofing".

"Sarao's alleged manipulation earned him significant profits and contributed to a major drop in the US stock market on May 6, 2010, that came to be known as the 'Flash Crash'," the US Department of Justice said in a statement.

- 'Kiss my ass' -

Sarao was challenged by US and European authorities in 2009 and 2010 over what the charge sheet said was his "suspicious activity". In various responses cited by the US authorities, he acknowledged that he frequently cancelled large orders but denied he was using automated trading software.

The Chicago Mercantile Exchange (CME), through which he did most of his trading, contacted him with concerns in 2009 and 2010.

In one response Sarao told his commodity broker, who acted as an intermediary, that he had called the exchange "and told 'em to kiss my ass".

In another, he claimed that he "was just showing a friend of mine what occurs on the bid side of the market almost 24 hours a day, by the high frequency geeks". His trading activity was also challenged by Eurex, a German derivatives exchange, and Britain's Financial Conduct Authority, but each time he denied using automated software.

Sarao's father, Nachhattar Singh Sarao, was quoted in The Times newspaper as saying that he knew nothing of the allegations against his son.

"All this is news to me. What you're telling me is as much a surprise to me," he said.

Asked about the nature of his son's work, he said: "I don't know about computers."