The FBI, spoofing and the curious case of Nav Sarao
The more I read into the curious case of Navinder Sarao, the more baffled I am as to the intensity of both the authority’s response and the press coverage.
Sarao’s case has attracted worldwide media attention as the
“man charged with causing the flash crash”.
This has been followed by numerous articles claiming how it
is impossible that one man caused the flash crash.
Of course it is.
But, in fact, the flash crash is not at the heart of the
charges and the coverage stems from a small section of the charge document
entitled (but not in fact explaining) Sarao’s Manipulative Activity Contributed
to the Flash Crash.
Sarao is being charged with market manipulation stemming
from a strategy that was heavily reliant on layering.
Now layering is of course an illegitimate trading strategy
but the response from (and indeed even the involvement of) the FBI is baffling.
Why is a prop trader from Hounslow facing years in prison
for spoofing?
There have been a number of charges in recent years for
layering. The first came in 2010 when Finra charged traders at Trillium Trading
and last year the co-founder and others at Visionary Trading were charged by
the SEC.
Both charges were settled by a fine (substantially lower
than Sarao’s £5m bail in both instances), neither involved the FBI and no one
was even threatened with prison or criminal prosecution.
It just doesn’t make sense.
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