DOJ shows lenience regarding futures trader accused of spoofing

Maria Nikolova

The United States Government recommends that the Court depart significantly below the advisory sentencing guidelines range, and sentence Navinder Sarao to a term of time served.

In what is a rather rare move, the United States Department of Justice (DOJ) has pushed for a sentence below the advisory sentencing guidelines range for futures trader Navinder Sarao, accused of spoofing.

On November 9, 2016, Navinder Singh Sarao pleaded guilty to two counts of a twenty-two count criminal indictment – he pleaded guilty to one count of wire fraud and to one count of spoofing.

As part of his guilty plea, Sarao admitted that during the period from at least January 2009 through at least April 2014, he used an automated trading program, along with other techniques, to defraud and manipulate the market for E-mini Standard & Poor’s (S&P) 500 futures contracts (E-minis), stock market index futures contracts based on the S&P 500 index, through the Chicago Mercantile Exchange (CME).

The sentencing of Sarao is scheduled for January 28, 2020, with the sentencing memoranda of the parties to the case submitted at the Illinois Northern District Court on January 14, 2020.

The Department of Justice is seeking a sentence of time served for Sarao, which means the trader may actually avoid prison term.

The adjusted offense level of 28 and criminal history category of I result in an advisory Guidelines range of 78 to 97 months’ imprisonment, in addition to any supervised release, fine, forfeiture, and restitution the Court may impose.

“However, based on the defendant’s extraordinary cooperation – which has been timely, complete, truthful, and helpful to the government, the government will move this Court pursuant to USSG § 5K1.1 to depart significantly below the low-end of the Guidelines range”, the DOJ says.

The US authorities note that, despite engaging for years in conduct he recognized was wrongful, the Sarao clearly was not motivated by money, greed, or any desire for a lavish lifestyle. He did earn more than £45 million in total trading profits – at least approximately $12.8 million of which was attributable to his fraud and spoofing scheme. He did not seem to care about any of that money, and did not use it to live anything approaching an extravagant lifestyle. His only significant purchase was a £5,000 car.

Of his remaining trading profits, the defendant lost over £40 million to three apparently fraudulent investment schemes. Further, Sarao has since surrendered his only remaining trading profits (approximately $7.6 million) to the United States in partial satisfaction of the $12.8 million forfeiture order in this case. Of that figure, the defendant paid $6.9 million (all that was available to him at the time) within just 10 days of his arraignment and guilty plea in November 2016.

The Government also notes certain aspects of the defendant’s lifestyle, including that he is supported by his parents, uses coupons to buy food at McDonald’s, lives in a child-like bedroom that includes multiple stuffed animals, and that his current primary income is from UK government benefits.

According to the DOJ, Sarao appears to have been driven by what he has described as an obsessive or addictive desire to excel at electronic trading. That the defendant has been diagnosed with autism also informs his trading behavior and conduct. His clinical psychologist has described the defendant’s autism as “both a disability . . . and a talent.”

Finally, the DOJ says that, to date, it has not received any inquiries about the case from possible victims nor has it received any victim impact statements. Hence, the government submits that no restitution order should be issued in this case.

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