A judge has ruled that Navinder Singh Sarao, the so-called hound of Hounslow, can be extradited to the US to face charges carrying a maximum sentence of 380 years.
Sarao plans to appeal the verdict and has been released on bail. The US Secretary of State must now make an order for the extradition to the Home Office within the next two months. Sarao will then have 14 days to appeal the request at the High Court following the order from the US.
If the High Court rules against him, Sarao could then appeal to the Supreme Court.
The US authorities have accused Sarao of contributing to the 2010 flash crash by placing large trade orders on the Chicago Mercantile Exchange then cancelling them before they were able to go through, a practise known as spoofing.
Use of the technique on the afternoon of 6 May 2010 caused the Dow Jones Industrial Average to fall sharply by several hundred points in a matter of minutes, before bouncing back almost at once. Sarao is accused of making a $900,000 profit the day of the flash crash.
In total Sarao made around $40m (£28.3m) from trades using the technique between 2009 and 2014. He was arrested at his parents home in Hounslow, west London in April last year where he would trade out of his bedroom, promoting some to speculate on whether a one-man-band operating out of a bedroom could spark a crash of such magnitude.
In a report issued alongside the verdict, district judge Quentin Purdy said Sarao could not be held either "wholly or mostly" responsible for the brief 2010 crash, saying its causes were not the result of a single action.
The have yet to be any traders charged in connection with the crash in the US.
The US regulator is seen as becoming increasingly active in policing overseas markets.
“The latest ruling underscores the US long arm approach to law enforcement and the UK’s willingness to go along with it. The takeaway is: just because you are thousands of miles away, don’t assume that your actions will escape a prosecuting agency in the US, or for that matter in the UK," said Barry Vitou, corporate crime expert at law firm Pinsent Masons.
The law against spoofing came into force in the US in 2010, and was first applied just five months ago in November 2015.
“This goes some way to explaining why the usually hawkish US authorities were so slow to act. It took them five years to bring any kind of formal sanction against Sarao, who was happily trading up until as recently as 2014," said Andrew Katzen, partner at Hickman & Rose, adding: "Small wonder that he is widely thought to be scapegoat.”
Sarao appeared at Westminster Magistrates’ court in his usual casual attire, sporting a red pull over and black jeans.
He made no reaction as the long awaited ruling was finally handed down in a court session that lasted no more than five minutes.
"We will definitely be appealing. We think we have still got a strong argument," said Sarao's lawyer Richard Egan following the ruling. Adding he was “very disappointed”.
Sarao's lawyers contest that spoofing is not an offence in Britain, so he should therefore not be extradited to the US.
In February Sarao's lawyer James Lewis QC argued the trader had only a "gossamer-thin" link to the flash crash.
“Spoofing is not a specific offence in the UK as it is in the US. However it could be covered by market abuse which includes ‘behaviour’ which gives or are likely to give a false or misleading impression or secure the price of an investment at an abnormal or artificial level," said Marleen Bouwer, solicitor at Byrne and Partners.
The US authorities claim that Sarao used customised software to place large numbers of sell orders with no intention on following through on them before quickly cancelling them. The authorities alleged that, by doing so, Sarao was able to take advantage of artificially lowered prices.
In his report Judge Purdy said the court had found as many as 99 per cent of contracts on the CME are routinely cancelled by traders and that "altering contracts is commonplace and legitimate".