Alleged spoofer, Navinder Sarao, to be extradited to the United States

On 14 October 2016, Navinder Sarao lost his final opportunity to avoid extradition to the United States on 22 charges of wire fraud, commodities fraud, commodities manipulation and “spoofing”. The High Court denied Mr Sarao permission to appeal the decision of District Judge Purdy, which had referred his case to the Secretary of State for extradition in March 2016. On 03 November 2016, the Court released its reasons, offering a road map to UK prosecutors looking to pursue similar cases of market manipulation.

Mr. Sarao is alleged to have manipulated the near-month E-mini market by placing multiple large-volume sell orders on the Chicago Mercantile Exchange (CME), cancelling the orders before they were executed, and exploiting the price manipulation for profit of approximately US $40m. The High Court found that Mr Sarao’s alleged conduct - placing offers which, at the time they were placed, he did not genuinely intend to be accepted - would constitute an offence under the Fraud Act (s 2), the FSMA 2000 (s 397) and the FSA 2012 (s 90) if proven in the UK. The test of dual criminality was, therefore, “amply” satisfied.

Key messages from the Court for future market abuse cases include:

This judgment provides strong support (and guidance) for criminal prosecution of market manipulation in a UK courtroom

• External evidence of intent - beyond the programming code of any algorithm - will be highly significant in any prosecution. Mr. Sarao’s candid emails with his computer programmers were highlighted by Irwin LJ (at first instance) as “direct evidence of dishonesty” and described by Gross LJ as “uncomfortable reading for him”.
• Evidence that a defendant was at risk of having certain orders accepted before cancellation will be irrelevant. The existence of “genuine, if unwanted, transactions” will not provide a defence.
• Trading data showing that other traders in the market were frequently cancelling orders will be immaterial. At issue will be the genuineness of the orders placed by the defendant and whether they were intended to be open for acceptance.

While Mr. Sarao conducted much of his trading activity out of his London home, extradition to the United States was not forum-barred. There were in this case powerful connecting factors to the United States, where the relevant exchange is based and the alleged harm occurred. Nonetheless, as the Court’s reasons make very clear, Mr. Sarao’s alleged conduct is captured by UK criminal offences. This judgment provides strong support (and guidance) for criminal prosecution of market manipulation in a UK courtroom.