US v Thakkar: “MasterChief” Day

Thom Thompson

Thom Thompson

Contributing Editor

The second day in US v Jitesh Thakkar and Edge Financial Technology began Tuesday morning with defense attorney Renato Mariotti’s cross examination of Navinder Sarao, the prosecution’s headline witness. Sarao, a cooperating witness, is awaiting sentencing for convictions on two criminal charges in a separate case, which could include up to 30 years jail time. The government is waiting to see how cooperative (effective?) Sarao turns out to be as a supporting player on Team USA and will condition his sentencing recommendations on his cooperation. Finishing up a few hours of cross examination, Mariotti struggled a bit to flesh out Sarao’s role as the mastermind. Sarao, for his part, struggled not to show impatience with the tedium of these proceedings that are so important for him and his prospects for freedom. Thakkar, the defendant, took notes and looked on.

During the two-day long, methodical examination and cross-examination, no clear idea of Sarao’s state of mind emerged until Mariotti dug out an email from late 2011 or early 2012 in which Sarao asked Jitesh Thakkar, the software developer he had hired and the defendant in the trial, to change the name of the software from “NAVTrader” (for Navinder) to “MasterChief.” He gave no reason for it in the email and never shared the reason with Thakkar, but he told the court that he didn’t want his name associated with it.

In his cross examination of Sarao, Mariotti homed in on the fact that there was no relationship between Thakkar and Sarao other than dealings around the small software development project. Mariotti also developed a picture of Sarao as a stingy customer who responded at one point by email to Thakkar’s proposal with “$15,000 is a hell of a lot of money” while he was in fact making millions of dollars trading. Mariotti made clear that Sarao had not appeared to endear himself to Thakkar. Sarao made a point not to call Jitesh Thakkar by any other name than “Defendant.”

Sarao’s testimony was followed by three government witnesses – truly “government” witnesses because they are federal government employees. The first of these was Richard Haynes, a CFTC-employed economist who had reviewed the market data from when Thakkar’s “back of book” program was being used. The next two witnesses were FBI agents who had interviewed Thakkar before he was charged.  

One of agents, Brent Potter, testified that he had interviewed Thakkar, before he was charged, on two occasions at his home in October and December 2017. Potter described how as a matter of strategy he and another agent called on Thakkar’s residence at 7:00 a.m. the first time and 7:50 a.m. the second time. Potter said they wanted to discuss Thakkar’s software away from the office and out of the public eye for his privacy’s sake and because he was likely to be more forthcoming in those discussions. During Mariotti’s cross examination, Potter admitted they wanted to surprise Thakkar. On the second visit, Potter said they had graciously left after a mere 50-some minutes to allow Thakkar to catch his train to the office. It sounded like they all got on quite well together.

The conversations between the agents and Thakkar at his home were recorded without Thakkar’s knowledge. Potter carried a microphone in the breast pocket of his suit. He said he never asked permission to record the conversations. Potter also told the court that he did not tell Thakkar he was under investigation, although he was in fact being investigated (and recorded). Under cross-examination, Potter told the court that Thakkar could have had an attorney present or simply could have refused the early morning visiting. He also said that he does not like to warn his interviewees ahead of time by making an appointment or calling ahead.

The prosecution played some of the recordings for the court. There were no “Gotcha!” moments.

Potter acknowledged that the early morning visits occurred six years after Sarao hired Thakkar and six years after the software was delivered. The prosecution pointed to some minor discrepancies between Thakkar’s early morning statements and the contents of his six-year old emails that had been read into evidence.  Due to the surprise nature of the visits, Thakkar had not been given the chance to prepare.

At any rate, in the six years since he hired Thakkar for a one-off project, Sarao has become infamous as the basement-dwelling criminal trader who caused the flash crash, and spoofing has become much more clearly defined. Thakkar can be heard on the recording telling the FBI agents, “I now know he [ Sarao] wanted to place big orders” and “I would never build something like that again.” By 2017, when they stopped by, Thakkar might have been on the same page about spoofing with the FBI agents, but his statements still do not demonstrate that Thakkar knew in 2011 that Sarao was going to spoof nor that Thakkar knew in 2011 that he was building a spoofing tool.

Mariotti’s cross examination established that, when he tried to call the software MasterChief,  Sarao was ashamed of the software that he had hired Thakkar to produce. There has been little evidence so far that Thakkar thought he designed what Sarao knew to be a tool for spoofing.

The trial continues Wednesday with expert testimony from a government witness about data analysis.

 

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