The Alleged Flash­Trading MastermindLived With His Parents and Couldn’tDriveJune 9, 2015 — 6:01 AM CESTby Suzi Ring, John Detrixhe and Liam Vaughan

Navinder Singh Sarao will never rank among the most notorious inmates of HM Prison Wandsworth.

William Joyce betrayed Britain to the Nazis. Ronnie Kray ruled the ganglands of the East End. BruceReynolds masterminded the Great Train Robbery.

Today Nav Sarao sits in a 10­foot­by­six­foot cell at Wandsworth, considered one of the worst prisons inBritain, accused of an altogether different sort of crime: helping to wipe more than $1 trillion offfinancial markets five years ago. At “Wanno,” a forbidding Dickensian fortress south of the RiverThames, time moves to the same monotonous rhythm: the jangle of guards’ keys at 6:30 a.m.; yardexercise at 8 a.m.; dinner at 4:30 p.m.; lockdown by 8 p.m.

Until one morning in late April, virtually no one in the great investment houses of the City had everheard of Sarao. But then Scotland Yard arrived in Hounslow, on the western fringes of London. Whathappened next stunned everyone.

An artist courtroom sketch shows Navinder Singh Sarao during his

second appearance at Westminster magistrates court, in London,

U.K., on April 29, 2015.

Artist: Priscilla Coleman via Bloomberg

Sarao was arrested at his parents’ modest, suburban home that Tuesday and accused of helping to causethe so­called flash crash of 2010, when the U.S. stock market plunged in a matter of minutes. Whileprices recovered almost as quickly as they’d fallen, the episode staggered investors. No one couldexplain it. Here at last, authorities claimed, was an answer: a glorified day trader living with his momand dad near Heathrow Airport.

Prison Tracksuit

This Tuesday, Sarao will return to court in his gray prison tracksuit and sit in the glass­fronted dock foran eighth time. The U.S. is seeking to extradite him on 22 counts ranging from wire fraud to marketmanipulation.

Sarao, 36, denies all the charges, and many observers doubt he, or anyone else, caused the flash crashsingle­handedly. Instead, they point to an uncomfortable truth about 21st Century markets: computers,not people, largely drive prices moment to moment.

“I’ve not done anything wrong apart from being good at my job,” Sarao exclaimed in court in May, theonly time he has spoken publicly since his arrest.

For all the question marks surrounding this case, the biggest of all has been Sarao himself. To FleetStreet, he is the “The Hound of Hounslow,” a tabloid caricature of City greed and excess.

Yet in this post­Madoff era, when giant banks plead guilty to felonies that would put ordinary perpsbehind bars, Sarao defies nearly everything we’ve come to expect from our financial villains. There wasno Alain Ducasse in London, no après ski in Gstaad. Interviews with people who knew or worked withSarao paint a very different portrait and, in some ways, a stranger one. Many spoke on the condition theynot be named to avoid being drawn into the scandal.

The home of Navinder Singh Sarao

Photographer: Carl Court/Getty Images

A London lawyer for Sarao declined to comment. A spokesman for Wandsworth prison contested itsdescription as one of the worst jails and said it had been praised for its performance.

Pathologically Frugal

Sarao’s devious trading netted many millions, authorities allege, but colleagues say he was almostpathologically frugal. He worked largely in line with U.S. markets, which enabled him to commuteacross London between rush hours to get cheap off­peak fares. He would buy sandwiches after the lunchcrush to save 50 pence. Asked by a colleague why he didn’t treat himself to a Bugatti, Sarao said hedidn’t know how to drive.

Sarao, 36, denies all the charges, and many observersdoubt he, or anyone else, caused the flash crash single­handedly

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

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

Noise­Reduction Headphones

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

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

Big Positions

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

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

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

His big returns meant big risks. “Most people in the risk department would say, ‘Hello, I don’t reallywant that because if it does go pear shaped, black swan event, where do you get out?’” said NeilCrammond, a former Futex employee. “There is no out.”

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, thefounder of Futex, says Sarao was so frugal it was “almost an eccentricity.”

Sports Direct

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.

But Sarao was growing tired of having to share his winnings with Futex. New traders usually keep 50percent of their profits, while stars like Sarao kept 90 percent.

Nav Sarao's new place of residence, Wandsworth Prison

Photographer: Graham Barclay/Bloomberg News

“This guy, for want of a better word, had balls”

Even that wasn’t enough. So Sarao ended his contract and struck out on his own at CFT Financials, aproprietary trading firm that also rented out space to private traders. He lined up backing and technologysupport from MF Global Holdings Ltd., the now defunct firm run by former U.S. Senator Jon Corzine.

According to former CFT traders, he came and went as he pleased and kept to himself, as he had atFutex.

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

‘Braveheart’

CFT is no Goldman Sachs. But among the small private traders in Sarao’s world, it had a reputation as aplace where a savvy young guy could get rich. Andrew Priston, director at CFT’s Montreal office, wasnicknamed “Braveheart” in the U.K. media. He was a regular on the 30 Under 30 list of successfultraders at Trader Monthly, a short­lived lifestyles magazine for financial players. Before joining CFT,Sarao had contacted the editor to ask how to make the list.

“I didn’t know Nav personally but obviously heard his name mentioned many times over at CFTLondon,” Priston said in an e­mail.

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

Spoofing

Those allegations center on what’s known as spoofing, an illegal technique that involves flooding themarket with bogus buy or sell orders to drive prices one way or another. The idea is to fool other traders,both humans and computers, to enable the perpetrator to buy low or sell high.

Many traders say spoofing, while illegal, is rampant in today’s high­tech marketplace. Authorities saySarao developed his computer algorithms in June 2009 to alter how his orders would be perceived byother computers.

On the day of the flash crash, May 6, 2010, more than $1 trillion was wiped off the markets in the spaceof half an hour. Sarao allegedly made about $900,000 using an algorithm that gave a misleadingimpression of the volume of sell orders.

In the aftermath of the crash, suspicion immediately fell on high­frequency trading firms, whose ultra­fast trading has come to dominate the marketplace. But while Sarao used trading algorithms ­­ what oneformer colleague called a turbocharged spreadsheet ­­ his methods were a far cry from those employedby HFT firms.

Daily Tea

Navigating the ins and outs of high­tech markets is now the least of Sarao’s worries. Whiling away up to23 hours a day locked­up and conserving his four daily tea bags are greater priorities. If he’s lucky, hemight get a job in the laundry or kitchen until his fate is decided.

While Sarao sits in Wanno, pressing questions remain unanswered. First: could a lone trader really bearsome responsibility for the flash crash, one of the most harrowing moments in Wall Street history?Second, and perhaps more important: if so, don’t we have a bigger problem?

“In the old days, it was a battle between traders,” says Paul Rotter, a trader nicknamed “The Flipper” ­­unfairly, he says, in reference a trading strategy that involved posting and then canceling big orders.“Now it’s a battle of machines and maybe some humans.”

A prison truck believed to have been transporting Navinder Singh

Sarao, which left Westminster Magistrates court in London on April

22, 2015.

Photographer: Will Oliver/EPA