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Told investigators to 'kiss my a**' when spoken to on day of 'Flash Crash', it is claimed

The whereabouts of the £26million an alleged Wall Street fraudster made by manipulating the US stock market remains a mystery as he today fought extradition to America and a possible 380-year prison sentence.

Navinder Singh Sarao, 36, appeared in Westminster Magistrates' Court facing claims from US and British authorities that he triggered a Wall Street 'flash crash' five years ago that wiped £570billion in value from America's biggest companies.

The FBI claim he is a rogue trader who used offshore bank accounts to make £26million ($40million) in total from illegal trades over five years, and an investigation team involving six agencies in the US and Britain want him put on trial in New York.

Dubbed the 'Hound of Hounslow', Sarao is accused of triggering the crash from his parents' £480,000 suburban home 3,500 miles away in Hounslow, west London and today described the accusations as a 'bolt from the blue'.

It is alleged he set up an offshore company in the Caribbean called Nav Sarao Milking Markets and told officials investigating if he caused the Flash Crash to 'kiss my a**'.

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In court: Trader Navinder Singh Sarao, 36, is shown here at Westminster Magistrates' Court where he refused to be extradited to America for alleged fraud

Arrest: Navinder Singh Sarao is accused of making £26million by 'spoofing' the stock market from his parents' semi in Hounslow, west London (pictured centre)

On May 6, 2010, £570billion ($850 billion) was wiped from the value of America's biggest companies, and the Brunel University graduate allegedly made £550,000 in five minutes.

Against the wishes of US prosecutors who fear he could flee, Sarao was granted bail this afternoon on the condition he provides a security of £5million, surrenders his passport, and does not use computers and telephones with internet access.

But District Judge Quentin Purdy questioned the whereabouts of more than £26million allegedly obtained by Sarao in the trading scam.

He said: '£26million wasn't mentioned by Mr Watkins (US prosecutor), but it was mentioned by the Crown, and that amount could well buy a home somewhere more lush than Hounslow. So where is it?'

Sarao allegedly used computer programmes to create fake transactions on an exchange run by Chicago-based CME Group Inc – all from his parents' home in Hounslow, west London.

Four police officers spent an hour today at the suburban family home with his parents.

'Flash crash': Sarao, a Brunel University graduate, is accused of causing the Wall Street 'Flash Crash' on May 6, 2010, when £570billion ($850 billion) was wiped from the value of America's biggest companies in five minutes

Panic: Traders at the New York Stock Exchange watch in disbelief as the markets tumbled during the 'Flash Crash' five years ago

Scotland Yard's extradition unit arrested him last night and when he appeared in front of magistrates for an extradition hearing today he was asked whether he consented to be moved to the United States and replied: 'No'.

Sarao appeared in the dock wearing a yellow sweatshirt and white tracksuit trousers. He faces 22 charges in the US, prosecutor Aaron Watkins told the court.

Support: His father Nachhattar Singh Sarao, believed to be pictured today outside his house, has said: 'We will fight the claims, it's all a set-up'

If found guilty he faces huge sentences, ranging from 25 to 5 years on each count, which could total 380 years.

Joel Smith, defending Sarao, said: 'This is a matter that has come as something of a bolt from the blue for Mr Sarao.'

He said his client had not attempted to 'anonymise' or conceal his conduct and described him as a man of 'impeccable' character with no previous convictions who lives with his parents.

Sarao, who graduated from Brunel University, has two brothers, one who is an optician with Specsavers.

'He is someone who has worked all his life in this country, not always as a trader,' said Mr Smith.

'He is someone who was born, raised and educated in this country, and it can only be said he has the strongest possible community ties with this country.'

Mr Smith said even the 'large numbers being bandied about' by the American authorities were not sufficient reason to believe Sarao would flee.

'The only basis which bail is resisted is that the defendant would fail to surrender and the only sustaining factor is the serious nature of the penalty,' Mr Smith said.

The court was told a surety of £30,000 has been offered by Sarao's retired father as well as £10,000 each from his two brothers, and he was granted conditional bail.

Sarao offered sureties totalling more than £5m were offered to the court. He has approximately £5m in one of his trading accounts - of which £4.7m is a loan. There is £100,000 in his actual bank account, the court heard.

Family: Navinder Singh Sarao's brother Rajvinder arrived at the family home to speak to his parents

Mr Watkins said the US government, which he represents, opposed his release in case he fled.

Addressing potential bail conditions, District Judge Quentin Purdy said: 'It has [his computer use] clearly upset the Americans, to put it mildly,' DJ Purdy said.

'There is certainly no reason he should not abide by a condition not to use a computer with access to the internet.'

Bailing Sarao, Judge Purdy said: 'I suspect the last 24 hours have been somewhat traumatic for you.

WHAT WE KNOW ABOUT TRADER DUBBED 'HOUND OF HOUNSLOW' 'Ambitious' and 'streetwise' trader Navinder Singh Sarao has been thrown into the worldwide spotlight after his arrest for an alleged £26million fraud. The 36-year-old is a computer expert and mathematician who graduated from Brunel University in west London. A former school friend, who asked not to be named told the Daily Telegraph: 'Navinder was really bright and was in the top set for all his subjects. He was a bit of a geek and studied maths and science at A-Level. He was a bit of a prankster but never got caught.' Anil Puri, 41, who lives near Clairvale Road, said he used to play with Sarao and his two brothers in the street when they were children. They would spend the holidays playing football and badminton. 'He was bright,' he said. 'He was good with everyone, like a normal kid. 'We used to play football, badminton and athletics in the street when we were young. There were no computers in those days. 'He wasn't shy. He was chirpy. We all used to play together out here quite a few years ago. 'We haven't seen them for a while.' He added: 'We still see the family around. His dad is always walking down here. His mum walks around as well. They were quite Cockney in their accents. They were born and bred here.' Advertisement

'Whatever the position was before, you are now aware the US government seeks your extradition. You face very serious charges'.

He is to live at his home address with his parents, and be subjected to a curfew between 11pm and 4am.

He must also surrender his passport, as will both his parents 'voluntarily.'

His refusal to leave Britain means he will face a full extradition hearing, likely to be held in August.

U.S. investigators claim he made up to £600,000-a-day by 'spoofing' the market by creating fake trades and then cancelling them as they were about to go through.

It is alleged he 'engaged in a massive effort to manipulate' the price of E-mini S&P 500, one of the most popular markets that includes well-known companies like Amazon, Boeing and Bank of America.

According to the FBI a month before the Flash Crash he set up a holding company on the Caribbean island of Nevis - and called it Nav Sarao Milking Markets.

An investigation uncovered the alleged fraud and if he is extradited to the United States he could face up to 25 years in jail, a $1million fine and any proceeds of crime seized back.

A U.S. Justice Department statement said: 'When prices fell as a result of this activity, Sarao allegedly sold futures contracts, only to buy them back at a lower price. Conversely, when the market moved back upward as the market activity ceased, Sarao allegedly bought contracts, only to sell them at a higher price.'

Friends and neighbours today described him as 'normal' and 'bright' man with a 'Cockney accent'.

They said they were mystified by claims he has made millions from trading, saying he was not 'flashy' and did not own a car.

Probe: Four police officers spent an hour today at the suburban family home with his parents while their son was in court

His father Nachhattar Singh Sarao told The Sun last night: 'We will fight the claims, it's all a set-up.'

WHAT WAS THE £570BN 'FLASH CRASH' AND HOW DID IT HAPPEN? A flash crash is a sudden plunge in stock prices. On May 6, 2010, the US stock market dramatically collapsed – wiping billions off the world's biggest companies. Between 2.42pm and 2.47pm, the Dow Jones shed 600 points, having already been down more than 300 points – a startling 6 per cent fall in just five minutes. Very soon it had recorded an almost 1,000-point loss on the day. But, by 3.07pm, the market had miraculously regained most of the 600-point drop – making the flash crash the second-largest point swing ever recorded. Hours later, European markets opened and crashed in similar fashion. The UK's FTSE 100 fell 138 points, France's Cac shed 163 points, and Germany's Dax dropped 193 points. The cause of the crash puzzled US officials. Theories included technical glitches, high frequency trading or changes in market structure – but never criminal activity. Advertisement

Mr Sarao's brother Jasvinder is an optometrist and director of the Specsavers firm and works at an outlet in Worthing, West Sussex.

Known as Jas he commutes regularly from his family home in Dorking, Surrey and was at work yesterday but would only say:

'Neither myself nor my family have any comment regarding my brother'.

FBI documents reveal he was questioned by the Financial Conduct Authority in London last year about his trading, and was asked about his trading patterns at least twice since 2009.

Explaining why he cancelled, bought and sold so quickly because he is 'an old school trader' who had 'always been good with reflexes and doing things quick.'

He was first asked about 'suspicious trading activity' in 2009 and he denied he was doing anything wrong.

In 2010 he was contacted again by the company he traded through in Chicago because 'it looks like he's deleting a huge amount of orders a second', an investigator said.

Sarao then responded and said he would 'like to apologise for any inconvenience caused by this' and added he 'was just showing a friend of mine what occurs on the bid side of the market almost 24 hours a day, by the high frequency geeks'.

The 36-year-old then pointed the finger at another trader and said: 'I see he continues to do this all day every day, yet you have a problem when I showed someone it for 5 mins?'

He also allegedly told CME Group Inc to 'kiss my a**' when they contacted him on the day of the 'Flash Crash' to remind him that all orders must be 'bona fide transactions'.

US prosecutors believe Mr Sarao used special computer software to manipulate the market on Wall Street

Neighbours: Anil Puri and Harmesh Singh Johal both said the fraud suspect was a 'normal' and 'polite' man and not 'flashy' at all

His activities went unnoticed by U.S. investors and regulators, who spent months investigating the Wall Street mystery crash and eventually blamed a jittery market.

But Mr Sarao is now alleged by prosecutors to have played a major role in the plunge by using tactics known as 'layering' and 'spoofing' on the day of the May 2010 crash.

These strategies involve creating market orders with no intention of following through on them, the aim of which is to push prices in a direction favourable to a trader's strategy.

CHARGE SHEET: WHAT NAVINDER SINGH SARAO IS ACCUSED OF Sarao faces 22 charges in the US, which carry sentences totalling 380 years in jail. They include 10 counts of commodities fraud, each of which carry a sentence of 25 years. He is also accused of a single count of wire fraud, which carries a sentence of 20 years. Sarao also faces 10 counts of commodities manipulation and attempted commodities manipulation. The final count is of 'spoofing' - a practice of bidding or offering with the intent to cancel the bid or offer before execution Each charge carrying a maximum sentence of 10 years. Advertisement

It is alleged Mr Sarao almost always cancelled his orders, but they wreaked chaos on Wall Street.

A report released almost five months after the incident had blamed a jittery market during the European debt crisis.

But yesterday, officials from U.S. Commodity Futures Trading Commission told reporters the British man was 'a significant factor in market imbalance' and that Mr Sarao's illegal activities cover a period of five years between June 2009 and April 2014.

An anonymous whistleblower is also said to have reported him after studying data on the day of the 2010 crash.

Aitan Goelman, director of enforcement at the U.S. Commodity Futures Trading Commission, said Mr Sarao was 'extremely active' in the market ahead of and during the flash crash, which occurred on 6 May 2010.

It is claimed that just less than two hours before the market fell sharply he set up £130million ($200million) of deals that caused the markets to plunge, then spring back upwards within minutes.

'His conduct was at least significantly responsible for the order imbalance that in turn was one of the conditions that led to the flash crash,' Mr Goelman said.

He was arrested at his parents' £480,000 home yesterday by officers from the Metropolitan Police at the request of the FBI.

He is now facing extradition and has been charged with one count of wire fraud, ten counts of commodities fraud, ten counts of commodities manipulation, and one count of 'spoofing'.

Navinder Singh Sarao, 36, appeared at Westminster Magistrates' Court today and refused extradition to America

There was no answer at Sarao's parents' semi-detached home. All of the curtains were closed and a green Vauxhall Corsa was parked outside.

Cab driver Amjad Mahmood, 64, who lives four doors down from the family home, said: 'I picked him up a couple of times from his house.

'SPOOFING' AND HOW IT WORKS 'Spoofing' is an illegal practice that sees fake trades placed and then cancelled in a matter of seconds to artificially manipulate the market. Documents filed with a US court by the FBI claim Sarao carried out a spoof practice called 'layering', using 'commercially available trading software' that allows traders to 'communicate with markets as quickly as possible and to place, modify, and cancel multiple orders nearly simultaneously'. While these 'spoof' electronic trades are cancelled in the blink of an eye - before they are completed - they are in place long enough to have an effect on market prices. Traders can use this market volatility to make real trades at more advantageous prices, allowing them to make vast profits. For example, they may enter a spoof sale order for shares or futures, which, following the rules of supply and demand, will create a drop in prices. This will then allow them to buy that product at a lower price than they might otherwise have been able to do, creating an opportunity for a higher profit margin when the price goes back up again. Advertisement

'He was working in Woking, I think it was for a computer company. I took him two or three times there, but I haven't seen him for three or four years. He was very quiet guy and they were a very nice family'.

A neighbour, Harmesh Singh Johal, 55, said he knew Sarao's parents, who live at the same address, but he had not seen the suspected fraudster for several years.

'He was such a nice kid but after that I haven't seen him much. I haven't seen him for a long time,' he said.

'For me, they are such a nice family. They are not showing off with Mercedes or something like that.

'Navinder didn't have a car. I thought he worked somewhere else. I haven't seen him for years.

'His parents are such nice people. They are a very nice family. Very religious.'

He said his father Nachattar Singh Sarao has been ill and his mother Darshaw Kaur Sarao has been working two jobs.

Anil Puri, 41, who lives near Clairvale Road, said he used to play with Sarao and his two brothers in the street when they were children.

'He was bright. He was good with everyone, like a normal kid.

'He wasn't shy. He was chirpy,' he said. 'We all used to play together out here quite a few years ago.

'We haven't seen them for a while.

'After school we all went our own way. When we were younger we used to see a lot of them. We still see the family around.

'His dad is always walking down here. His mum walks around as well. They were quite Cockney in their accents. They were born and bred here.'