U.K. Man Arrested on Charges Tied to May 2010 ‘Flash Crash’

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from The Wall Street Journal,

Dow Jones Industrial Average plunged 1,000 points intraday during crash.

A U.K. trader who operated out of his West London home was arrested on Tuesday on U.S. charges that he contributed to the May 6, 2010, “flash crash” by engaging in illegal computerized trades that helped send the Dow Jones Industrial Average into a 1,000-point intraday plunge, according to U.S. authorities.

Prosecutors and regulators charged Navinder Sarao with using commercially available software to manipulate a stock-market index futures contract, laying the groundwork for the index’s biggest, fastest decline ever, in which hundreds of stocks momentarily lost nearly all of their value.

Authorities said Mr. Sarao, who was 31 years old at the time of the crash, earned $40 million in profits from 2010 to 2014 through the manipulation, including $879,000 on the day of the flash crash.

Mr. Sarao’s alleged conduct underscores the fragility of financial markets and the potentially destabilizing role computerized trading can play.

That trading by a single individual severely exacerbated an imbalance in the S&P 500 E-Mini futures contract, which caused a cascade of trading resulting in what is now referred to as the “flash crash,” said Commodity Futures Trading Commission enforcement director Aitan Goelman.

“I don’t think you could say one individual singularly caused it, but we do believe that Mr. Sarao’s spoofing was a contributing factor” to the flash crash, Mr. Goelman said.

The arrest of the British trader originated from a tip-off from a whistleblower, according to the whistleblower’s lawyer.

The anonymous tipster “brought powerful, original analysis to the CFTC after hundreds of hours spent investigating the Flash Crash for several years,” said Shayne Stevenson, an attorney at the law firm Hagens Berman LLP who represents the whistleblower.

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