CFTC Charges UK Trader Company with Spoofing Scheme That Contributed (Allegedly) to "Flash Crash" Day in 2010
The CFTC announced the unsealing of a civil enforcement action in the U.S. District for the Northern District of Illinois against a futures trader and his company, Nav Sarao Futures Limited PLC (together, the "Defendants"). The CFTC Complaint (the "Complaint") charges the Defendants with unlawfully manipulating, attempting to manipulate and spoofing – all with regard to the E-mini S&P 500 near month futures contract.
The Complaint was filed under seal on April 17, 2015 and kept sealed until the April 21, 2015 arrest of the futures trader by British authorities acting at the request of the U.S. Department of Justice ("DOJ"). After the arrest, the DOJ unsealed its own criminal Complaint charging the trader with the same misconduct.
According to the Complaint, for five years and as recently as April 6, 2015, the Defendants engaged in a "massive effort" to manipulate the price of the E-mini S&P by utilizing a variety of "large, aggressive, and persistent spoofing tactics." The Complaint alleges that the Defendants often cycled through tactics, which included a layering algorithm, several times during a typical trading day to create large imbalances in the E-mini S&P visible order book that affected the prevailing price. Allegedly, defendants then traded in a manner designed to allow them to profit from this temporary and artificial volatility, resulting in profits of over $40 million since April 2010.
The Complaint alleges that the Defendants were "exceptionally active" in the E-mini S&P on May 6, 2010 – commonly known as the Flash Crash Day – causing the Dow Jones Industrial Average to plunge 1,000 points within minutes.
The CFTC is seeking permanent injunctive relief, disgorgement, civil monetary penalties, trading suspensions, and payment of costs and fees, and the DOJ has filed a related criminal action. The U.S. District Judge also issued an order freezing and preserving assets under the Defendant's control on April 17, 2015, and prohibiting them from destroying documents or denying the CFTC staff access to their books and records. The Court has scheduled a hearing for May 1, 2015 on the CFTC's motion of preliminary injunction.