While looking for recent market crashes, I came upon 2010 Flash Crash. However, I am unable to understand what wrong the alleged perpetrator, Navinder Singh Sarao, did.

Entering an "order to sell stocks (or shares)" and "then cancelling those orders", should not a crime, should it? A trader (or an investor) can change his or her mind at any time before the order goes through.

I am not saying that nothing went wrong, but just trying to understand.

2 Answers 2


The criminal complaint against Sarao can be found on the US Department of Justice's website. He was charged under four different sections of US Code:

  • 18 USC 1343, which prohibits the use of inter-state or foreign telecommunications in the furtherance of a fraudulent scheme.

  • 18 USC 1348, which prohibits fraud concerning securities and commodities markets.

  • 7 USC 13(a)(2), which prohibits manipulation of commodities markets.

  • 7 USC 6c(a)(5)(C), which specifically prohibits "spoofing" of commodities markets.

It's this last one that you seem to be most interested in. Spoofing is defined as "bidding or offering with the intent to cancel the bid or offer before execution." In other words, it's legal to change your mind after you place an order, but it's not legal to place an order that you have no intent of following through on. This section was actually enacted as part of the Dodd-Frank Act, which took effect a few months after the "Flash Crash"; the charge against Sarao under this section stemmed from actions he took later, in 2014.

The charges against Sarao specifically relating to the "Flash Crash" were under the wire fraud and securities fraud statutes instead. In the end, Sarao pled guilty to one count of wire fraud (covering his ongoing actions from 2009–2014) and one count of spoofing, presumably as part of a plea deal.

  • 2
    thanks, if possible, how one can *** enter an order with the intent to cancel *** , I am asking as in my experience ( nano common investor), once I enter an order, there is always a risk that I may not change that order
    – Raj
    Oct 17, 2019 at 17:54
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    @Raj: As bdb484 noted in the comments on their answer, it doesn't matter whether or not you succeed in canceling the order; placing an order with no intent to execute it is the crime. That said, according to the criminal complaint Sarao used "custom, automated software" that allowed him to cancel the orders more quickly and reliably. I would recommend that you read through the criminal complaint for more details. Oct 18, 2019 at 0:08
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    How can "intent" in such a case be proven without literally reading the defendant's mind?
    – vsz
    Oct 18, 2019 at 6:09
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    @vsz Sarao used "custom, automated software" that allowed him to cancel the orders more quickly and reliably. That definitly shows intent to not go through with orders in the first place Oct 18, 2019 at 6:15
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    @vsz Isn't the (presumed) motivation of an individual often a factor in criminal justice? If I hurt a pedestrian with my car in an accident it's a completely different story than if I drive them down on purpose. Strictly speaking, a jury would "need to read my mind" to decide which of those it was, but circumstantial evidence is often robust enough to leave little doubt. It is the same case here - the person used custom software specifically built to cancel orders quickly. This leaves little doubt about his intent.
    – xLeitix
    Oct 18, 2019 at 9:47

I imagine it's not a crime to change your mind before the order goes through, but that's not really what this guy did. The allegation is instead that he never intended to follow through on those orders in the first place.

Entering an order to sell stocks and then canceling those orders is a crime if its done with an intent to manipulate the market, which is what the government alleged.

Under 15 USC 78i, it is illegal to use any instrumentality of interstate commerce (mail, phone, Internet, etc.) with a "purpose of creating a false or misleading appearance of active trading in any security."

Securities law is a bit technical and well outside my wheelhouse, but the folks responsible for regulating it seem to write the laws pretty broadly to ensure that people who are not acting in good faith can be punished.

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    thanks, I have seen some time, when i enter an order to buy or sell, and if I try to cancel, some time i am successful in cancelling but some time the order goes through and I am not able to cancel, and in both cases the risk(and reward is mine) So if this guy ( I suppose others also) has the power to just enter an order, but not follow through. Be cause if one sells stocks, and if that stock goes up then the seller has lost( some money). How this guy can control the part when he does not follow through.
    – Raj
    Oct 17, 2019 at 13:57
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    It doesn't matter what actually happens when he tries to cancel. He did not enter the orders with the purpose to make orders. Instead, he entered the orders with the purpose of creating a false appearance of active trading. That is a crime.
    – bdb484
    Oct 17, 2019 at 17:01

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