Navinder Singh Sarao, 36, of London, was arrested April 21, 2015, following a joint investigation by the U.S. Commodity Futures Trading Commission (CFTC) and the Department of Justice (DOJ). Sarao, along with his company Nav Sarao Futures Limited PLC, is accused of manipulating the E-mini S&P 500 futures contract traded on the Chicago Mercantile Exchange (CME).
The CFTC complaint, filed under seal on April 17, 2015, and unsealed with Sarao’s arrest, alleges a five-year scheme to manipulate market prices using a sophisticated “layering” algorithm. This algorithm involved placing and canceling large sell orders to create artificial volatility and profit from the resulting price fluctuations. According to the complaint, Sarao modified an off-the-shelf trading platform to automatically layer multiple sell orders, creating the illusion of significant selling pressure.
Between April 2010 and April 2015, Sarao reportedly used this algorithm on over 400 trading days. The complaint details how these orders were strategically placed to remain visible to other traders but were ultimately canceled without execution, a tactic known as spoofing. The aim was to influence the E-mini S&P 500 price and profit from the resulting market imbalances.
Investigators claim Sarao generated over $40 million in illicit profits through this scheme. Notably, the complaint alleges Sarao was particularly active on May 6, 2010 – the day of the “Flash Crash” – utilizing the layering algorithm for over two hours prior to the market’s sharp decline, involving nearly $200 million worth of orders.
The DOJ has filed a criminal complaint mirroring the CFTC’s allegations. Penalties for market manipulation and spoofing can include substantial fines and imprisonment. The case is being prosecuted in the U.S. District Court for the Northern District of Illinois.
Source: CFTC.gov
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