A British trader accused by U.S. authorities of market manipulation that contributed to the May 2010 Wall Street "flash crash" was granted bail by a London court on Wednesday, after saying he opposed extradition to the United States for a trial.
Navinder Singh Sarao, 36, will remain jailed in London for at least one night after bail was set at 5 million pounds ($7.5 million), along with other conditions.
Sarao's bail hearing was his first appearance since the U.S. Justice Department on Tuesday said it charged him with wire fraud, commodities fraud and market manipulation over a period of several years.
Sarao is accused of using an automated program to "spoof" markets by generating large sell orders that pushed down prices. He then canceled those trades and bought the contracts at the lower prices, reaping a roughly $40 million profit on his trading, U.S. authorities said.
The flash crash saw the Dow Jones Industrial Average briefly plunge more than 1,000 points on May 6, 2010, temporarily wiping out nearly $1 trillion in market value.
In its complaint, the Department of Justice said that his activities "contributed to the order book imbalance" that was a factor in the flash crash.
The case marks the first time U.S. regulators have alleged that illegal activities played a role in the crash. Sarao was first contacted by regulators in 2009, who questioned his trading, but the "spoofing" activity he engaged in continued until recently, according to the U.S. Commodity Futures Trading Commission. Sarao had been a member of the CME Group, where he traded stock futures, since May 2008.
The head of the CFTC said on Wednesday that it took nearly five years to charge Sarao because of the size and complexity of U.S. financial markets.
"These are huge markets," Chairman Tim Massad said at an industry conference in Chicago. "There's a lot going on."
"We will do everything in our power to pursue those who attempt to engage in fraud or manipulation in our markets," he said in the text of a speech prepared for delivery at a conference in Chicago.
Sarao's 'dramatic' 24 hours
Sarao appeared calm in his first appearance at Westminster Magistrates' Court. Wearing a yellow sweatshirt and white tracksuit bottoms, Sarao spoke quietly to confirm his name, address and date of birth.
In addition to his bail, his closest relatives must produce 50,000 pounds, and he is restricted in his movements, a London judge said.
His bail conditions include wearing an electronic tag, complying with a night-time curfew at his home in Hounslow, west London, carrying a mobile phone at all times to answer calls from police and reporting to Hounslow police station three times a week.
"I suspect the last 24 hours have been somewhat dramatic for you," District Judge Quentin Purdy told Sarao at the end of the hearing. "But you now know the U.S. seeks your extradition on very serious charges."
Sarao will have no access to the Internet for any purpose. His passport and those of both his parents will be taken away and kept by police, and Sarao is not allowed to leave England or Wales for any purpose. He was warned he would face a fine or prison if he breached his bail conditions.
His lawyer declined to answer questions from reporters about his response to the U.S. allegations.
The next court hearing in the case is scheduled for May 26, with a full extradition hearing to follow on Aug. 18 and 19.
"This has come as a bolt from the blue for Mr. Sarao," his lawyer Joel Smith told the court.
The court heard that Sarao had 100,000 pounds in various betting accounts and another 5 million in a personal trading account of which 4.7 million pounds was a loan.
The family's neighbors in Hounslow said they had never seen any outward sign of unusual wealth, and the court hearing did not shed any light on the existence or whereabouts of such a large amount.
Aaron Watkins, representing the U.S. judicial authorities at the London hearing, said that side of the investigation was "being actively followed up."
Sarao was arrested at the home he shares with his parents, a modest suburban house under the flight path of nearby Heathrow airport.
Smith told the court Sarao was born and raised in Britain and had attended Brunel University in London. He had worked for banks before becoming an independent trader.
Watkins told the court Sarao had worked as a trader from his home operating primarily through a company he set to trade futures using commercially available software. This allowed traders to communicate with markets and place multiple orders almost simultaneously.
"On numerous occasions ... Mr Sarao is alleged to have spoofed the market," he said.
Watkins also said that Sarao had been asked to stop by U.S. authorities but continued his activities, knowing they were wrong.SHOW MORE