WASHINGTON/CHICAGO (REUTERS) - The British trader blamed for his role in the May 2010 Wall Street flash crash went through a rapid series of brokers and moved his assets around the world, court documents showed.
Navinder Singh Sarao, 36, was arrested in the United Kingdom this week on US criminal charges, and authorities are linking his trades to the flash crash, when about US$1 trillion (S$1.3 trillion) was temporarily wiped out from US stock markets in a matter of minutes.
The case marks the first time US authorities have alleged that illegal activities played a role in the crash, which markets regulators said in October 2010 had been caused by various factors, including a computer-driven trade by a mutual fund which chose to sell a large number of E-mini S&P 500 futures contracts.
Sarao, a self-described insomniac, also urged authorities to ban manipulative practices by high-speed traders, the documents showed.
"I don't like the HFT arena and have complained to the exchange numerous times about their manipulative practices, please BAN it," he said, referring to high frequency trading (HFT) in a May 29, 2014, e-mail to Britain's Financial Conduct Authority filed in court.
The documents also showed Sarao, who used companies based in the British West Indies, the Middle East and Switzerland, went through a rapid succession of brokerages that cleared his trades on the CME, doing business with now defunct MF Global, Marex, Knight Futures and finally R.J. O'Brien.
Sarao was billed £375,000 (S$758,000) for helping him save £7 million in capital gains tax liabilities as a result of transferring the money to the Federation of St Christopher & Nevis, by a tax consultant named Brian Harvey. Harvey was not immediately available for comment.
At one stage, he also proposed transferring money to the United Arab Bank Dubai from Switzerland's Hinduja Bank, saying he was meeting with a UAB director as part of his due diligence procedures to open an account.
R.J. O'Brien "had no involvement in the trading decisions" made by Sarao, or his company, a spokeswoman for the firm said, adding that they had cooperated with authorities.
"RJO had no involvement whatsoever with the individual or his company at the time of the Flash Crash in 2010 or for several years thereafter," she said.
Sarao, 36, is accused by US authorities of using an automated program to "spoof" markets by generating large sell orders that pushed down prices.
He then cancelled those trades and bought the contracts at the lower prices, reaping a roughly US$40 million profit on his trading, authorities have said.
The flash crash on May 6, 2010 saw the Dow Jones Industrial Average briefly slide over 1,000 points, temporarily wiping out nearly US$1 trillion in market value.
In a complaint, the US Department of Justice said Sarao's activities "contributed to the order book imbalance" that was a factor in the plunge.
Sarao, who was granted bail by a London court on April 22, has said he opposes extradition to the United States for a trial.