The third episode of a bizarre legal soap opera was staged in courtroom number four of Westminster Magistrates’ Court on Wednesday.

At its centre was Navinder Sarao, a 36-year-old bachelor who, until three weeks ago, lived quietly with his parents in a pebbledash semi a few hundred yards from Heathrow airport.

Rarely seen by neighbours, for years he had spent his days, and a good portion of his nights, behind the net curtains of an upstairs bedroom, tapping at a selection of computers.

When he did occasionally venture out — wearing cheap, unbranded tracksuits from High Street store Sports Direct — Sarao would often ride a fold-up bicycle. For longer journeys, an ancient green Vauxhall Corsa was parked outside.

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Accused: Navinder Sarao was found to be a secret financial genius who traded on global markets

For sustenance, he’d drink milk straight from the bottle and skip lunch in order to buy cut-price sandwiches that go on sale from 4pm, when supermarkets need to clear their day’s stock.

This modest, if not downright parsimonious, existence came to a sudden halt on April 21.

At around breakfast time, the Sarao family was disturbed by a knock at the front door. Outside were several police officers carrying a warrant for Navinder’s arrest.

He was, they said, facing extradition to the United States, where the authorities intend to charge him with a string of very serious crimes. If convicted, he could spend the rest of his life behind bars.

In the ensuing hours, days and weeks an extraordinary back-story has emerged.

Sarao, a computer science graduate with few visible assets, turns out to have been a secret financial genius, who devoted most of his adult life to trading on global markets — with huge, almost unbelievable success.

In the process, apparently without the knowledge of even his immediate family, he single-handedly generated tens of millions of pounds.

Despite living like a penniless student, he came to control bank accounts in Switzerland and the Middle East, and private companies in tax havens such as Nevis, Anguilla and the Cayman Islands.

Yet a large portion of his net worth — up to £28 million, according to court papers — was generated in ways that U.S. prosecutors regard as illegal. The FBI, which has spent months investigating Sarao, used the day of his arrest to publish a 31-page criminal complaint accusing him of no fewer than 22 separate financial crimes, which carry a maximum sentence of 380 years.

Modest: The family house where he lived with his parents in Hounslow, West London, until recently

Among other things, this sensational document claims that he helped cause the ‘flash crash’ of May 6, 2010, when the Dow Jones index of leading U.S. shares suddenly fell by 1,000 points, or more than 9 per cent, before swiftly recovering.

On that day, in a few chaotic minutes, $500 billion was briefly wiped off the value of America’s top corporations. The Bureau claims that, as ripples of panic spread across the world, Sarao dishonestly made a total of $879,018 — the equivalent of roughly £578,000 — with a few clicks of a computer mouse, by illegally betting on market movements that he’d deliberately engineered.

Other days have seen him earn as much as $4,095,771 [£2.7 million] by similar means, the FBI alleges, cocking a snook at regulators whom he once, in a fit of arrogance, told to ‘kiss my ass’.

We’ll look at the nuts and bolts of Sarao’s alleged crimes later. But in light of his eccentric lifestyle, and with a nod to the recent film The Wolf Of Wall Street — in which Leonardo DiCaprio plays an entirely immoral trader — it is little wonder that they have seen Sarao dubbed the ‘Hound of Hounslow’.

He, for his part, denies any wrongdoing. Indeed, far from being a criminal mastermind, he claims instead to be a victim: a law-abiding professional who has been persecuted by incompetent regulators seeking a cheap PR coup.

The U.S. authorities, he argues, are using him as a scapegoat in order to paper over their own failure to properly control markets. They have deprived him of his liberty, like a common crook, when he’s guilty of nothing more nefarious than being good at his job.

Now they are seeking to have him sent across the Atlantic, to stand trial in a foreign land.

In the eyes of supporters, of whom there are a growing number in the City of London, this makes him just the latest in a series of hapless Britons — from Asperger’s sufferer Gary McKinnon, who hacked into the Pentagon, to the so-called ‘Natwest Three’ bankers who pleaded guilty to fraud — to have their freedom threatened by our controversial extradition laws.

In light of his eccentric lifestyle, and with a nod to the recent film The Wolf Of Wall Street — in which Leonardo DiCaprio plays an entirely immoral trader — it is little wonder that they have seen Sarao dubbed the ‘Hound of Hounslow’.

All of which brings us to Wednesday’s court hearing, Saroa’s third since the day of his arrest.

Lawyers for Sarao, who was dressed in a grey sweatshirt and tracksuit bottoms, devoted roughly an hour to attempting to secure his release from Wandsworth prison, where he has now spent almost three weeks.

Bail, which he must pay before being freed, was set last month at £5,050,000 — of which £5 million must be funded by Sarao, the remaining £50,000 by his family. The money will then be held to secure his attendance at a full extradition hearing scheduled for September.

All of which would be perfectly straightforward, were it not for a Kafka-esque twist.

For while Sarao apparently has more than enough money to pay the £5 million, he is unable to access it.

The reason? On the day they filed charges against him, American prosecutors also decided to issue a worldwide order freezing every single one of his financial assets.

As a result, this 36-year-old Briton — who, remember, is yet to be convicted of any crime — is stuck in prison. The foreign country responsible for his detention has made it impossible for him to unlock cash to secure the bail to which he is lawfully entitled.

In court on Wednesday, Sarao’s barrister, James Lewis QC, argued that this is all a bit rum. However, he failed to persuade the district judge to change the bail terms, prompting Sarao, who is clearly approaching his wits’ end, to make an extraordinary public outburst.

‘What am I in jail for?’ he shouted, while being led back to custody. ‘I didn’t do anything wrong apart from being good at my job.’

Speaking with a West London accent, he added: ‘How is this allowed to go on, man?’

Sarao’s angry comments, his first in public, offer an intriguing insight into a character which has hitherto been shrouded in mystery.

The youngest of three boys, he has spent his entire life in Hounslow, living at a modest, three-bedroom semi which his hard-working parents bought in 1982, and is now worth around £400,000.

Crash: Navinder Sarao, a 36-year-old bachelor, is accused of triggering a $500billion Wall Street crash (file photo)

His father Nachhattar, 67, is retired, and his mother Daljit, 61, works in a pharmacy. They arrived in Britain, apparently from India, in the mid-Seventies, and have been regulars at the local Sikh temple ever since.

Eldest brother Rajvinder, a 40‑year‑old IT worker, lives directly over the road with his wife and children. The other brother, 37-year-old Jasvinder, is a Specsavers optician based in Dorking.

By all accounts, the three brothers enjoyed a normal suburban childhood. ‘They were very close,’ Brinder Bedi, 39, a school friend, said recently. ‘They all used to wear their football gear. Nav was sporty, he seemed to be a normal kid.’

They attended Heston Community School, where Navinder gained A-levels in maths and science. He then studied computer science at nearby Brunel University, before taking an unglamorous back-office job at a bank.

Sarao’s life changed, by all accounts, in 2005, when at the age of 26 he took a graduate job with Futex, a trading firm in Woking.

Futex is a so-called ‘prop shop’, where traders play the markets using what is effectively their own money, seeking to second-guess rapid changes in the price of stocks, commodities and derivatives.

They are trained, mentored and given desk space. In return, the firm gets a cut of any profits they make. It’s a cut-throat world, where both risks and rewards are huge. And Sarao immediately displayed enormous talent. ‘Nav was very bright, very dedicated,’ is how Paolo Rossi, Futex’s co-founder puts it.

In his first year, Nav Sarao Futures, the firm that he funnelled income through, made around £50,000. The following year, it had £200,000 in the bank. And in 2007, at the age of 28, Sarao became a millionaire.

‘If I trade well on a volatile day I normally make circa $133,000,’ he claimed, in an email to the editors of Trader Monthly magazine that summer. ‘On quieter [sic] days I look to make between $45,000 and $70,000.’

The events of 2008 brought even bigger rewards.

‘During the financial crisis, this guy, for want of a better word, had balls,’ a former Futex colleague, Miltos Savvides, recalled in a recent presentation. ‘He used to get into big positions, he saw the risk, he saw the reward and he took on the trades.

‘There was this one day when the market was just collapsing … he just stood in the way, put in his bids, bought up the market and went home and went to sleep.’ When he came back the next day, Sarao was $13 million up, Savvides added.

I've done nothing wrong except be good at my job Navinder Sarao

Despite the spectacular success, Sarao was famed for being spectacularly tight-fisted. Neil Crammond, a former risk manager at Futex, recently recalled: ‘He would turn up at 10am to get an off-peak train fare and buy a sandwich at 4pm to get it half price.’ Adam Whiting, who sat on the next desk, says Sarao once ‘rewarded’ himself for having made £15,000 on a trade by spending £100 in Sports Direct. However, when the market moved against him, ‘he took all his clothes back’.

‘Nav used to wear a tracksuit every day, even when an early millionaire,’ said Whiting. ‘He loved making money, not spending it.’

He had no taste for luxury goods or fast cars, did not buy property for himself or expensive gifts for his family and is said by colleagues to have treated his job ‘like a computer game’ in which money was merely a way of keeping score. To that end, by 2011, when he had left Futex to trade from home, Nav Sarao Futures Limited was worth around £20 million.

'This fortune appears to have belonged almost entirely to Sarao. The firm’s company secretary since 2005, an old friend called Gurmatpal Dusanjh who now lives in the United Arab Emirates, has told the Mail that he agreed to the position as a formality, that he had ‘nothing to do’ with the company for around a decade and that he has not received any remuneration.'

A financier called Miles Mackinnon, who works for London firm MD Capital Partners, had a passing involvement in Sarao’s company, serving as a director for four months in 2010. He did not return calls from the Mail seeking comment. Around the same time, Sarao began moving assets out of the UK. He had also established a firm called Nav Sarao Milking Markets in the secretive Caribbean tax haven of Nevis, and one called the International Guarantee Corporation, in Anguilla.

Around $17 million was placed at Hinduja Bank, in Switzerland, which, in 2012, he proposed transferring to the United Arab Bank in Dubai.

According to U.S. prosecutors, this network of companies was established to ‘protect his assets’. It certainly helped avoid taxes. He was at one point billed £375,000 for transferring money to Federation of St Christopher, Nevis, by a consultant called Brian Harvey, who claimed to have saved him £7 million in tax. All of which is, of course, perfectly legal, however morally dubious.

No, Sarao’s alleged crimes revolve around the manner in which he made the cash in the first place.

The FBI alleges that from 2009 onwards, he regularly did it using two illegal forms of market manipulation: ‘dynamic layering’ and ‘spoofing’.

Both involve using computer programs to place, and then cancel, bids to either buy or sell financial products at a certain price.

The prosecution alleges that Sarao’s dynamic layering worked as follows:

He would repeatedly place multiple orders to sell vast quantities of financial products at just above the going rate.

Because other sellers in the market were offering a better price, the orders would never be taken up. However their existence created a fiction: that there were more sellers in the market than there actually were. That, in turn would tend to push the price down.

As the market fell, Sarao’s computer would then cancel the sell orders and lodge new ones, again just above the going rate, continuing the trend.

On occasion, he would allegedly speed things up by also placing large sell orders at below the market price, but getting the computer to automatically cancel them a fraction of a second before anyone could fill them. This is called spoofing and also has the effect of pushing prices down.

Once the market had been artificially depressed, Sarao is accused of then buying the financial products at the cheaper rate, and selling them on at a profit which, due to the scale of his operations, could be huge.

On January 28, 2001, for example, the FBI says he placed six large ‘sell’ orders on the market at 11.54am, when the asking price was $1,278.25. These were then modified 3,341 times in the next hour, as the price fell to $1,274.50. Sarao is then said to have cancelled his sell orders and cashed in as the price rose.

He repeated the process 24 times that day, the prosecution alleges, executing roughly 10,000 buy and 10,000 sell trades, with a notional value of $11.2 billion. This generated a total of $862,048 in profit.

That’s the charge, at least. The question is: will it stick? And here, things rapidly become unclear.

Sarao’s defence, for example, is unlikely to deny that he placed and then cancelled multiple orders. However it will almost certainly argue that this is part of legal trading activity.

Around half of all orders on the market concerned are eventually cancelled for a variety of reasons, and the rules governing when this becomes illegal are vague.

Even if he admitted spoofing, there is no guarantee that he will be successfully extradited.

The treaty between the U.S. and the UK requires ‘dual criminality’, meaning that an alleged offence must be a crime in both countries. Spoofing is not a specific crime in England, although ‘fraud by misrepresentation’, which may cover the activity, is.

Then there is the question of the motivation behind the charges.

By choosing to prosecute a lone trader such as Sarao, rather than the many larger firms trading (and cancelling orders) on the market on a regular basis, U.S. prosecutors risk allegations of seeking an easy scapegoat.

Such arguments are, however, for another time: if successfully extradited, Sarao may not actually stand trial for several years.

In the meantime, Richard Egan, Sarao’s solicitor, tells me his team is ‘disappointed’ by this week’s failure to secure his release and ‘will be lodging an application at the High Court to appeal that decision’, possibly in the coming days.

But, for now, this eccentric and very understated multi-millionaire remains behind bars.