Sarao Sentenced to Home Detention

Thom Thompson

Thom Thompson

Editor

Navinder Singh Sarao escaped possible detention in a U.S. prison for anywhere from 78 to 97 months when he was sentenced yesterday in Chicago to one year of detention to be served at his parents’ home in Hounslow, west London. The term of the sentence begins today.      

Sarao pleaded guilty in November 2016 to spoofing the E-mini S&P 500 futures market for six  years, from 2009 to 2015, from his childhood bedroom at his parents’ home where he still lived. Sarao admitted to making almost $13 million from his spoofing, on top of another $27 million in profits. The E-mini S&P 500 futures were not his first futures trading rodeo – the Department of Justice calculated that he had lifetime earnings of about $70 million. Sarao was 36 when he was arrested and stopped trading.

After his arrest at home in April 2015, Sarao was jailed in a London prison for four months as his lawyers and parents arranged bail for him. After he was granted bail his lawyers fought his extradition to the United States, where it was thought he would face harsher legal and prison conditions. He lost against the claim that he should be tried in the United States because, among other things, he had perpetrated his alleged crimes on an American market. In November 2016 Sarao was arrested and jailed for three nights after he arrived in Chicago and while he waited for his hearing before Judge Virginia Kendall. 

As a condition of bail, Sarao agreed to assist the U.S. government in investigating and litigating spoofing violations. The nature and extent of his assistance were to help determine the DOJ’s ultimate sentencing recommendations. Famously, in April last year Sarao provided extensive and detailed testimony for the DOJ at Jitesh Thakkar’s trial. Sarao had once hired the developer Thakkar for some software customization for his trading programs.

Sarao’s detailed and “fulsome” (the DOJ’s term) answers under both examination and cross-examination established clearly that Thakkar had not conspired in Sarao’s spoofing, and the court threw out that charge against Thakkar. This perverse result was due at least in part to Sarao’s obvious autism which would prevent him from ever conspiring with anyone. Sarao was a compellingly lonely presence on the witness stand.      

Autism was front and center at Sarao’s sentencing. The defense had provided an extensive written report about the defendant from one of Britain’s foremost experts on autism, Dr. Simon Baron-Cohen. According to his attorney, he was first diagnosed with Asperger syndrome, a form of autism, only after his arrest in 2015. Sarao thought that the diagnosis explained a lot. 

The defense told the court how autism led to Sarao’s spoofing as much as it permanently resolved it. Sarao, who suffered from certain cognitive and social impediments, also exhibited what Judge Kendall called a “curious flash of brilliance” in his ability to recognize patterns in the anonymous data presented by trading screens. Sarao had earlier been drawn to computer games and when he discovered electronic trading he found his adult metier. 

As he developed this new skill, he began to perceive that maybe others were not abiding by the rules to his disadvantage. Sarao repeatedly contacted the market regulation department at the CME where the E-mini S&P futures trade to complain about trading patterns. The responses he received were unsatisfactory and Sarao became frustrated. 

After this, according to his attorney, Sarao became convinced that the rules of the marketplace were the rules as they were lived, not as they were written. Autism is often characterized by an obsession with rules. Sarao’s autism, he said, would never have let him break rules – especially serious, punishable ones, and Sarao began to compete as a spoofer. He thought spoofing was allowed under the rules of the game. 

The government attorney also focused on Sarao’s autism. By the time he interviewed Sarao, Sarao had confessed fully and accepted complete responsibility for his spoofing. Sarao, the attorney said, immediately became cooperative and started to assist the DOJ. Because of Sarao’s special talents, he was able to teach DOJ investigators and prosecutors about spoofing, of which Sarao’s was only the second case ever brought by the department. The DOJ says that Sarao’s help let them bring 12 cases in 2018 alone.  

The attorney told the court that U.S. v.  Sarao was a unique and extraordinary case for several  reasons, mostly because the defendant was a unique and extraordinary person due to his autism. The DOJ recommended that Sarao not be sentenced to any more time in jail. For the DOJ to recommend no jail time in a serious case like this was a “rare thing in this building,” according to Judge Kendall.

The defense of course welcomed this recommendation and also described how difficult prison time would be for Sarao in light of his autism and told the court that Sarao had suffered tremendously during his four month incarceration. Sarao was afflicted because of his heightened sensory sensitivities and the enforced socialization of prison life.

Judge Kendall, who according to courthouse wags is a “hanging judge,” did not play down the extensiveness and economic seriousness of Sarao’s crimes. In a very businesslike way, she deducted months from the sentence guidelines in accordance with the official schedules. Sarao qualified for the largest credits for his litigation assistance. Eventually she got down to a sentence of one year incarceration. After saying that it was a unique case with a unique individual who completely confessed to his crimes, Judge Kendall insisted that Sarao serve the one year, but, she noted, he should do it at home in Hounslow.  

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