How Nav Sarao Went From A Trading Floor Prodigy To A 10 By 6 Prison Cell In Britain's Worst Prison

Tyler Durden's picture

Two months ago, nobody had heard of Navinder Sarao. Then, overnight, the gaunt, quiet 36-year old became a global sensation when five years after the historic May 2010 market crash, the US regulators did a 180 an thoroughly revised their "version" of who caused the Flash Crash, and instead of blaming a small mutual fund out of Kansas decided to unleash the wrath of the US justice system on a young trader that until late April had been a complete unknown among Wall Street's power circles.

It all started when Scotland Yard arrived in a house in Hounslow, on the western fringes of London, where Nav Sarao was arrested on one late April morning. Wait, this wasn't some dramatic perp walk out of a glass tower in Canary Wharf? No, for one simple reason: Sarao lived his parents. He also didn't know how to drive.

And so begins one of the most fascinating profiles of a modern day financial mastermind: instead of tailored Saville Row suits, thundering parties, booming Bugattis and the occasional jaunt to the Riviera (or the Hamptons in the case of his US peers), Nav was the antithesis of a Wall Street. He was, in the words of Bloomberg which has created a fascinating profile of the young trading guru, "pathologically frugal" in fact "Sarao was so frugal it was almost an eccentricity."

How was it possible that "a glorified day trader" was "living with his mom and dad near Heathrow Airport."

As Bloomberg reports, "in this post-Madoff era, when giant banks plead guilty to felonies that would put ordinary perps behind bars, Sarao defies nearly everything we’ve come to expect from our financial villains. There was no Alain Ducasse in London, no après ski in Gstaad. Interviews with people who knew or worked with Sarao paint a very different portrait and, in some ways, a stranger one. Many spoke on the condition they not be named to avoid being drawn into the scandal."

The confusion laid out:

Neighbors in the Sikh community where Sarao grew up remember him as nothing special, if they remember him at all. His older brothers followed safe, predictable paths: one became an optician, the other an IT specialist.

 

Sarao reached for more. Each morning he would awaken in the stucco home where he grew up. His mother would drive him to the train in her old, green Vauxhall Corsa, beyond the sari shops and temples of the neighborhood’s Little India. 

But while he came, and lived, in the most modest of surroundings, in his job he was a superstar:

Fifteen miles east, he would step off in the City and into his other life. Beyond St. Paul’s, toward Tower Bridge, he would stroll along Minories street to St. Clare House, take the lift to the fifth floor and drape his leather jacket over the back of his chair. Then he would put on noise-reduction headphones and set to work.

 

Here at last people noticed him. Everyone at CFT Financials Ltd. had heard about Nav, as they had at Futex Ltd., the small trading firm where he started out. Over time, his ambition curdled toward obsession, even paranoia. He became convinced that his orders were somehow being leaked. But to the mostly male, mostly young screen jockeys trying to scratch out a living in the markets, Sarao was a legend. 

 

“This guy, for want of a better word, had balls,” Miltos Savvidis, a trader at Futex, later recounted to prospective employees. “He used to get into big positions, he saw the risk, he saw the reward, and he took the trades.”

 

Sarao arrived at Futex as a graduate trainee in 2003 after studying computer science at Brunel University, not far from his home in Hounslow. Futex spots trainees as much as 1 million euros ($1.2 million) in return for a cut of profits and, before long, Sarao was the talk of the trading floor.

How good was he? He would clear GBP500,000, or about $750,000 per week just trading the ES:

While the other traders were eking out 500 pounds ($765) a week, he was clearing 500,000 pounds. He sat by himself, away from the rest. At the end of the day, his colleagues would try to sneak a look at a computer log of everyone’s profits and losses. Sarao was almost always at the top.

It was here that the first glaring contradction emerged: instead of this superstar trading blowing his hard-spoofed money on hookers and coke, Sarao saved it all. Every last penny:

But in a business where money is the ultimate measure, and where success means Bollinger and Beluga, Sarao stood out for another reason: he never seemed to spend much money at all. Paolo Rossi, the founder of Futex, says Sarao was so frugal it was “almost an eccentricity.”

 

One day Sarao arrived at the office with 100 pounds of new clothes from Sports Direct, a discount chain. When the markets moved against him, he returned his purchases. At the time, he was making about $130,000 on a good day, maybe $70,000 on a mediocre one.

His disdain for material possessions aside, for Sarao only one thing mattered: being the top (carbon-based) trader in town.

“I just want to be the biggest trader,” Sarao told one colleague shortly after starting there.

Futex was small for him, so he decided to become a prop trader: Sarao ended his contract and struck out on his own at CFT Financials, a proprietary trading firm that also rented out space to private traders. He lined up backing and technology support from MF Global Holdings Ltd., the now defunct firm run by former U.S. Senator Jon Corzine.

It was here when Sarao allegedly started his spoofing ways:

The new freedom at CFT also meant a new approach. According to U.S. allegations, it was during those years that Sarao began “a massive effort to manipulate” stock futures on CME Group Inc.’s Globex electronic trading platform.

So yes, Sarao was a terrific trader, and he spoofed which is illegal. But, as we explained since day one: all Sarao did was to compete with the algos: after all spoofing takes place millions and millions of time each day at the millisecond level. Sarao's only real crime is that he left footprints big enough the CFTC and the police could track.

Many traders say spoofing, while illegal, is rampant in today’s high-tech marketplace. Authorities say Sarao developed his computer algorithms in June 2009 to alter how his orders would be perceived by other computers.

What happened next? "Over time, his ambition curdled toward obsession, even paranoia. He became convinced that his orders were somehow being leaked."

The rest of the story is known: as we wrote in late April, "Why Sarao Is The Flash Crash Patsy: He Threatened To Expose The "Mass Manipulation Of High Frequency Nerds."

Where is Sarao now?

Today Nav Sarao sits in a 10-foot-by-six-foot cell at Wandsworth, considered one of the worst prisons in Britain... At “Wanno,” a forbidding Dickensian fortress south of the River Thames, time moves to the same monotonous rhythm: the jangle of guards’ keys at 6:30 a.m.; yard exercise at 8 a.m.; dinner at 4:30 p.m.; lockdown by 8 p.m.

Some other criminals who have resided at Wanno: William Joyce betrayed Britain to the Nazis. Ronnie Kray ruled the ganglands of the East End. Bruce Reynolds masterminded the Great Train Robbery.

And that, dear readers, is what passes for "justice" in the New Normal.

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timeless21's picture

Yes, but what happened to Ebola?

Manthong's picture

Jamie Dimon, Lloyd Blankfein and Jon Corzine should be his cell mates.

Headbanger's picture

Yeah!

The food would be a lot better

MonetaryApostate's picture

Pin the tail on the donkey....

SoilMyselfRotten's picture

We may soon be reading how he leapt to his death from his cell bed

Serfs Up's picture

Funny how our rapcious, earth-destroying culture readily defines and identifies with frugality as "pathological" while the next $500 million home is feted as a delicious aspiration.

DonutBoy's picture

So glad they caught this villian.  Now the markets are open and honest again.

HungryPorkChop's picture

He should had never tried to figure out how the mobsters were cooking the stawk markets then tried to beat them at their own game.  Guess he's lucky that his parent didn't have a nail gun in the garage.

Next genius that want's to do this I'd suggest they give ole' Marty Armstrong a call and ask him how it worked out. 

wiser's picture

But look how the US authorities actually deal with repeat offenders of such disorderly market activity…

Settlement of Charges Against Igor Oystacher

Case Number 2013-009

Oystacher has been found to have been up to the exact same market jinks as Sarao, but he’s been able to settle everything with a pretty modest fine and a promise not to do it again.

Oystacher has form in the business of neither admitting or denying such market manipulation. Back in November he was found to have been “spoofing” and placing “iceberg orders” in oil, gold, silver and copper on the CME. The sanction that time was a $150k fine and a one month ban.

What the hell are we missing here?

Sarao would appear to be the victim of a serious dislocation of justice. Or maybe it’s Oystacher. If Sarao’s activity supposedly helped trigger the Flash Crash of 2010, why do the market authorities at ICE and CME still treat it as something worthy of a slap on the wrist?

http://ftalphaville.ft.com/2015/06/09/2131408/on-the-ongoing-incarcerati...

ZH Snob's picture

these guys play rough when they need a scapegoat.  his and manning's fates are a disgrace.

 

In the courtroom of honor, the judge pounded his gavel
To show that all’s equal and that the courts are on the level
And that the strings in the books ain’t pulled and persuaded
And that even the nobles get properly handled
Once that the cops have chased after and caught ’em
And that the ladder of law has no top and no bottom

Read more: http://www.bobdylan.com/us/songs/lonesome-death-hattie-carroll#ixzz3cZoGAjK8
Headbanger's picture

Power tools kid... power tools

Ghordius's picture

 

I have a pet theory regarding Nav Sarao. He was spoofing, without knowing it, a very, very important legal defense for the future:

"Honestly, how can you blame us humans? Our algos are self-learning, nearly self-aware. They did it. Put them to prison. Ok, a slap on the wrist should be enough, as usual"

walküre's picture

Where is the money then? He clearly didn't spend it. Unless there's a trail of this, the whole matter is a complete cockup.

pods's picture

My bullshit detector is pinging.  Seems they found the guy, frog marched him, then built the narrative.

Furniture must be made of gold.

pods

 

Freddie's picture

If he was pulling down those big numbers each day trading then he will be able to hire a good attorney.

nevadan's picture

I originally thought this story was bs too.  But it seems that David figured a way to slay Goliath and it turns out that the giant is many.  For his audacity he has apparently had his bank accounts frozen so he is helpless against the machine.  The impudent little puke must be taught a lesson.

mtl4's picture

This guys just showed everyone that the tide recedes (liquidity disappears) when the tsunami (big order spoofing) comes in.........Goldman probably hand picked him since he's not from the US and therefore makes a great scapegoat.  Can't wait to see what brand of in-justice he gets served for trying to get in the sandbox with the big guys.  I'm sure some of the big trading houses lost a few million and wanted their pound of flesh for doing so.

raywolf's picture

if he was a kick ass trader to start with, why would he need to spoof ?

if a trader cancels an order for whatever reason - saying that it's a spoof trade is entirely circumstantial, so are any profits he made that day.

if the exchanges want to deal with spoofing, all they need to do is start charging a small fee for every cancelled order... problem solved...

Temporalist's picture

Fortunately prisons are frugal and minimalist so he'll feel right at home.

Payne's picture

He did break a law but then he was aided and abetted by Corzine.

ebworthen's picture

Wonder if Corzine will bring him some bran muffins and a copy of Mein Kampf?

"Better luck next time kid; Obama and Cameron send their regards."

Normalcy Bias's picture

Madoff victims: mostly fellow Chosenites

 

Corzine victims: mostly small farmers

 

Lesson: Choose your victims wisely...

Bill of Rights's picture

He should have ran for Parliment he'd be a free man today.

cowdiddly's picture

Well glad the MOFO is frugal, it will serve him well. You gonna eat that Jello?

TrumpXVI's picture

Sometimes deeply emotionally disturbed/psychotic individuals are very good investors.  Gary Heidnick, notorious Philadelphia serial killer/torturer had hundreds of thousands of dollars in his investment account (from a previous inheritance of a few tens of thousands) when he was finally caught and arrested.

ParkAveFlasher's picture

Sometimes deeply emotionally disturbed/psychotic individuals leave comments like this one ^^^^.

Max Steel's picture

Indians are goys . you can smell them.

Loucleve's picture

he is not Indian, who are Hindus, he is Sikh.

EhKnowKneeMass's picture

Epic comment... Public school?

still kicking's picture

hahahhaha......dumbass.  Detroit or Chicago public schools?

roddy6667's picture

180 million Indians are Muslim.
Only 25 million are Sikh.

Max Steel's picture

i appreciate your informative posts.  Accpet my request roddy666 . i've been following your insightful commnets on China . thanks

Max Steel's picture

...................lol lou. downvoters failed to grasp my sarcastic comment.Sikhs are indians only,having different religion doesn't mean you are non-indian .Indians are not neccessarily only  Hindus. India is a multicultural society having many religions . By 2050 India will become a muslim dominated nation : FYI .

CHC's picture
CHC (not verified) Jun 9, 2015 10:45 AM

"Invest in plastics - it's the future!"

Seasmoke's picture

Damn. There's that guy Corzine name again. 

Oh regional Indian's picture

Pretty fucking fucked up......

Calculus99's picture

If this doesn't prove to you how dirty the markets are, small time guys get no bail and have yet to go to trial whereas big time financial (yet  connected)crooks don't even see the inside of a court, then you're a bit dim. 

Blankenstein's picture

Big time crooks get to keep spending OPM: 

 

"Hedge-fund billionaire Steven A. Cohen was the mystery buyer who paid a record-setting $141 million for Alberto Giacometti’s bronze “Pointing Man” at a Christie’s auction in May, according to two people familiar with the deal."

 

"Point72 was formerly known as SAC Capital Advisors LP. In 2013, SAC agreed to plead guilty to insider-trading charges, pay $1.8 billion in fines and stop managing money for outside clients.

Mr. Cohen still faces a civil case from the Securities and Exchange Commission, which has alleged he failed to supervise employees who were later found guilty of insider trading. He has denied the accusations."

http://www.wsj.com/articles/steven-a-cohen-was-mystery-buyer-of-141-mill...

 

Oldwood's picture

Maybe he is in jail, not for spoofing, but because he was a saver, a hoarder of capital, the most criminal act you can commit. It is his fault, as others like him, that our economy is failing. Our job is not to earn or save but to spend...to consume....everything.

ThisIsBob's picture

He's a thief, right?

Dewey Cheatum Howe's picture

He was, in the words of Bloomberg which has created a fascinating profile of the young trading guru, "pathologically frugal" in fact "Sarao was so frugal it was almost an eccentricity."

New propaganda term being programmed here to label savers or those that try to resist the system through non participation as.

JuliaS's picture

It implies he had stuff worth taking. If he spent every last penny on hookers and blow, law enforcement would be less encouraged to go after him. That's why they love doing drug busts, or marching in to shut down pyramid schemes. It's a top dollar (or pound) operation.

As for frugality - it's been labeled a sin all throughout fiat history. It's not a modern thing. You ain't a patriot unless you go out and spend.

Captain Willard's picture

His crime was being self-employed. Since he did not work for a bank with a license to commit crime, he was therefore vulnerable to prosecution. One must share one's gains with politicians in order to operate on this scale.

Depression is Coming's picture

Where are the GS brokers?

I worked on the floor at the PHLX as an equity derivatives trader trainee for a 6 month internship...I watched GS brokers front run their clients every single day! At one point it got so bad that our specialist refused to trade with the cock smokers.

I guess god's work must get done..