‘Flash Crash’ Scapegoat Nat Sarao Sentenced To 1 Year House Arrest

Last week, we reported that US prosecutors had recommended to a judge presiding over the sentencing of 2010 ‘flash crash’ scapegoat Nat Sarao that the former day trader be sentenced to time served.

Though that’s not exactly how things went during his Tuesday sentencing, at least Sarao – nicknamed the ‘Hound of Hounslow, the London neighborhood where his parents own a home – won’t see the inside of another jail cell. According to the Guardian, “the story of the British day trader charged with triggering a trillion-dollar “flash crash” that caused havoc on Wall Street in 2010 ended where it began on Tuesday with a judge sentencing him to one year of home incarceration at his parent’s house.”

Sarao’s parents leave in West London, and after five years of legal struggles that included being extradited from the UK to the US, the former day trader, who has been diagnosed as being on the autism spectrum, and who was reportedly scammed out of nearly all of the $35 million-plus he earned trading. Sarao used a custom-designed algorithm that cancelled his orders before execution to manipulate markets, prosecutors said.

Spoofing, or placing orders and then cancelling them before execution to create the appearance of more – or less – demand, is illegal in the US.

Sarao

However, there’s one important caveat: Prosecutors, who had asked the judge to deliver a sentence of time served, pointed out that a sentence of home confinement in the UK would be impossible to enforce. Though the judge and Sarao’s lawyers reportedly came to an agreement that would only allow him to leave the house under special circumstances.

The sentence means Sarao, who earned roughly $1 million on the day of the flash crash, will have only spent four months in a UK prison.

Prosecutors praised Sarao for his cooperation in other cases, and for expanding prosecutors’ understanding of how criminal traders game the system.

Initially, Sarao was charged with 22 counts of fraud related to his ‘spoofing’ trades over five years. During the May 6 2010 flash crash, the Dow Jones Industrial Average plunged 600 points in five minutes, then regained most of that amount over the following 20 minutes.

The sentence marks the end of a nearly five year ordeal: Sarao was arrested by British authorities in 2015 and spent four months in Wandsworth prison before being extradited to the US.