The cautionary tale of Navinder Sarao...
Navinder Sarao is a self-taught stock market trader. But he sparked panic in the U.S. stock market from his bedroom in London, England.
Why? He was involved in creating a “flash crash,” which saw the value of the financial markets suddenly drop. In total, the crash wiped out $1 trillion worth of shares. Ouch.
Often described as “highly intelligent,” Sarao has Asperger’s syndrome, an autism spectrum disorder. He reportedly compared making money in the stock market to winning a video game. Quoting an article published by CNBC:
“U.S. authorities claimed Sarao made more than $70 million between 2009 and 2014 from his bedroom — much of it legal. However, it has been reported that he has lost almost all of his money after investing in fraudulent scams. His attorneys argued that money was never his motivation, but he had an ongoing fascination with markets as a sophisticated video game.”
How Navinder Sarao Made $40m From His Bedroom…
The stock market was intentionally manipulated to increase Navinder Sarao’s wealth. According to the BBC, he conducted remote trading on the Chicago Mercantile Index using specialized software. He then purchased and sold contracts that traded on the value of U.S. corporations:
“On this index, every time an order was placed to buy or sell, high-frequency traders — many of them not human but computers running algorithms — would try to make their own trades milliseconds before those orders could be executed. That way, they could be the first to make money from market changes.”
Sarao’s specialized trading software basically allowed him to “spoof” the market. “Spoofing is a form of market manipulation in which a trader places one or more highly-visible orders but has no intention of keeping them,” per Investopedia.
Sarao then created artificial demand for other traders to buy or sell specific assets. And by pretending to make a trade in a specific direction, he manipulated the stock market with ease.
Here’s What Happened In Court…
Sarao plead guilty to fraud and spoofing charges in connection with his role in the May 6, 2010, “Flash Crash,” when the Dow Jones Industrial Average plunged 600 points in five minutes.
“Navinder Sarao abused sophisticated technology to make a quick profit, and jeopardized the integrity of U.S. financial markets,” said Assistant Attorney General Caldwell. “By flooding the marketplace with bogus orders, his scheme victimized countless individuals. Our success in bringing Sarao to justice in the United States shows that the Criminal Division will root out complex financial fraud and manipulation of the financial markets no matter where the perpetrators are located.”
Sarao was accused of 22 offenses, which carry a maximum sentence of 380 years total. However, he didn’t spend money on opulent items and lost all his profits to fraudsters. So, the prosecution eventually decided against seeking a jail sentence.
But He Was Sentenced To A Year Of House Arrest…
Home confinement might not be all that different from Sarao’s everyday life. Despite being in his early 40s, Navinder lived with his parents since he was a young kid, seldom leaving the house.
His lifestyle was modest. Despite making millions of dollars as a trader, Navinder used discount coupons whenever he ate at Mcdonald’s. He also purchased a second-hand Volkswagen car for less than £8,000 ($9,200).
Navinder’s defense attorney, Roger Burlingame, described him as a “singularly sunny, childlike, guileless, trusting person who is instantly beloved by all who encounter him, including the FBI agents and prosecutors.”
Important Disclaimer: This article is for informational and entertainment purposes only. It should not be considered financial advice under any circumstances. The author does not endorse Navinder Sarao’s actions whatsoever.