Navinder Sarao didn’t seem like the international criminal mastermind type.
He lived with his parents, wore a choppy bowl cut and, instead of three-piece suits, he favored laddish track pants. He pedaled a bike around his suburban London neighborhood and would show up to important meetings munching on a McDonald’s Filet-O-Fish.
But in 2015, the online futures trader — who’d earned tens of millions of dollars from his bedroom — was arrested and accused of contributing to a troubling 2010 market crash that momentarily wiped out trillions of dollars.
“Nav was an irresistible character, and his was a really enticing human story,” says Liam Vaughan, a business journalist and author of the recent book “Flash Crash: A Trading Savant, a Global Manhunt, and the Most Mysterious Market Crash in History” (Doubleday).
“I was just shocked at every turn,” he adds.
Certainly, Sarao’s path to riches was unusual.
He lived in a modest West London suburb, the son of immigrants. Even as a young boy, he had a photographic memory and was a whiz with numbers.
In 1998, while attending Brunel University London, Sarao noticed that one of his housemates always had money. When he asked how, the classmate replied: “Trading.”
Soon, Sarao was reading everything he could find on financial theory and the markets.
Two years out of school, he landed a job at a low-rent financial firm, located above a supermarket, that basically rented desks to wannabe traders and took a cut of their profits.
Sarao quickly distinguished himself from the other recruits, not just in the slangy way he talked — like the Sacha Baron Cohen character Ali G — and dressed, but in his almost robotic focus.
“For eight hours a day he sat at a lone desk . . . his face inches from his screens, in what appeared to be a catatonic state,” Vaughan writes. “To block out the world, he wore a pair of red, heavy-duty ear [plugs] of the type favored by road workers. He didn’t communicate with anyone.”
A few years after he joined the office, Sarao was regularly pulling down $25,000 on a good day.
He’d eventually outgrow the firm and strike out on his own, working from his childhood bedroom in his parents’ house. There, he’d start earning tens of millions trading “e-mini” futures, a contract that tracks the S&P 500.
Despite his wealth, however, Sarao didn’t live lavishly. His only big purchase was a secondhand Volkswagen Golf.
“I think that he was a gamer and, for him, markets were honestly the ultimate form of game,” Vaughan says.
Sarao was more concerned with the rise of high-frequency trading, a method of buying and selling that used powerful computers and algorithms to execute trades in fractions of seconds. The speed allowed (mostly) large, monied firms to beat others to a trade, thereby securing a better price.
Sarao bristled at the unfairness.
He began engaging in what is known as “spoofing.” He hired software developers to write programs that would allow him to place millions of dollars worth of orders, then — after other traders had reacted to his potential trade — abruptly cancel his order.
The deception allowed Sarao to nudge the market higher or lower and reap the benefits.
His trading habits eventually drew scrutiny from the Chicago Mercantile Exchange, earning him cautionary letters. Sarao, however, phoned the authorities and told them to “kiss my ass.”
Then on May 6, 2010, Sarao logged on from his bedroom and began furiously trading, attempting to capitalize on the volatility still roiling the markets after the 2008 crisis. In the final two hours before he logged off at 7:40 p.m. London time, the trader had bought and sold 62,077 e-mini contracts — with a combined value of $3.4 billion.
A minute later, markets tumbled with a “velocity and intensity it never had before,” Vaughan writes.
The drop quickly rippled into other financial markets in the United States but also around the world. The S&P shed 5 percent of its value in just four minutes. Procter & Gamble, General Electric and other blue chips dropped 10 percent or more. The Dow lost 9 percent in a few minutes and most other indices took a historic hit before rebounding around a half-hour later.
Sarao was later arrested and extradited to the United States, only the second person ever charged with spoofing. It’s unclear how much his actions contributed to America’s so-called “flash crash.” The US government contends that he was partially responsible, while some financial experts disagree, seeing him as a Robin Hood whose actions only hurt wealthy companies.
Vaughan says Sarao’s motivation had little to do with money, and refers again to it being like a game for him: “He really just saw the dollar signs that were rising in his trading account as points. He liked that he was getting one over on his opponents.”
Sarao, now 41, ultimately cooperated with the authorities and all but two charges against him were dropped. In January, he was sentenced to one year of house arrest.
“I think justice was done because the message was out there that someone shouldn’t be thinking about doing what Nav was doing,” the author says.
Others have since been arrested for similar crimes, but the financial world is hardly free of manipulation.
“On Wall Street, innovation never stops,” Vaughan says. “The cheating has just become more sophisticated.”
