The former employer of the British futures trader arrested earlier following a U.S. indictment that alleged he played a role in the 2010 flash crash that sent the Dow plunging 600 points within five minutes said he was a factor in the dramatic drop but wasn’t the cause of it, Bloomberg TV reported Friday. Navinder Singh Sarao, who worked for the U.K. firm Futex for five years, is being sought for extradition to the U.S., a move the 36-year-old Sarao is fighting.
“Did Navinder Sarao cause the flash crash? No, it’s not possible,” said Futex fonder Paolo Rossi. “Was he a contributing factor? Probably, a million things were a contributing factor.”
The wire fraud, commodities fraud and manipulation charges against Sarao don’t claim that he caused the crash but say that he had an “alleged role” in the May 2010 flash crash. The Justice Department alleged Sarao manipulated the market for stock index futures contracts based on the S&P 500 index, known as E-Minis, on the Chicago Mercantile Exchange. A drop in the price of E-Minis was followed by a 600-point drop in the Dow Jones Industrial Average that led to “significant profits” for Sarao. He allegedly created a false sense of supply by making multiple high-volume sell orders and then canceling the contracts before they were executed, according to the indictment. Sarao sold the contracts as the prices fell and bought them at the lower price when the market headed lower and did the reverse when the market gained ground.
Sarao worked at Futex from 2002 to 2007, before the flash crash, because he didn’t want to share his profits with the company as stipulated when they took him on as a trader, according to Bloomberg. He was arrested Tuesday in Hounslow, England, by U.K. authorities, the Justice Department said. The U.S. is seeking his extradition.