‘Hound of Hounslow’ made £30million in just four years trading from his parents’ home

The “Hound of Hounslow” day trader accused of helping trigger a Wall Street “flash crash” made more than £30 million profit dealing from his parents’ home in four years, the Evening Standard can reveal.

FBI agents are investigating claims that Navinder Sarao, 36, transferred as much as £26 million to banks in the Caribbean. US investigators allege that he has hidden money in a “complex web” of offshore accounts.

Accounts filed by Sarao’s company, Nav Sarao Futures Ltd, show that its gross annual profits ranged from £4.331 million to £10.426 million between 2009 and 2013.

As the sole employee of the business virtually all the profits would have gone to Sarao, making him one of London’s highest-earning traders.

Sarao faces a possible 380-year prison sentence in the United States if he is convicted of triggering the “flash crash” that wiped hundreds of billions of dollars from the value of American shares in a matter of minutes.

He allegedly used automated trading software to “spoof” the market by placing up to 19,000 orders and then cancelling them, all in under one second. He is wanted for trial in Illinois on multiple charges of wire fraud, commodities fraud and market manipulation.

In the criminal complaint “United States of America v Navinder Singh Sarao”, filed yesterday at the US District Court in the Northern Illinois, FBI Special Agent Gregory Laberta claimed the Londoner admitted to amassing “the majority of his (net) worth… in no more than 20 days trading’ on days when the market was particularly vulnerable.”

The accounts show that much of the profit he made appears to have been transferred to an “Employee Benefit Trust”, a legal device typically used by high earners such as Premier League footballers to defer tax.

However, in the financial year between 1 May 2011 and 31 October 2012 he wrote off much of the value of the trust, resulting in a £27.05 million pre-tax loss. The accounts do not offer an explanation for the write-off other than it was because of “an impairment charge… in respect of an investment held by” the trust.

Nav Sarao Futures Ltd was registered in July 2005 and posted £33,000 profit for its first full year trading at the end of 2006. The accounts show a rapid increase in both profits from 2009 to 2013, the period covered by the US Department of Justice’s charges.

According to Special Agent Laberta, Sarao stashed money he earned during the 2010 Wall Street “flash crash” and in his other high frequency trades at banks on the islands of Nevis and Anguilla. “Around the time of the flash crash, Sarao took significant steps to protect his assets,” says the criminal complaint.

“In late April 2010, Sarao established a new entity, Nav Sarao Milking Markets Limited, which was incorporated in Nevis. Sarao appears to have created this company as part of a tax avoidance strategy pursuant to which he also established, in 2012, International Guarantee Corporation, incorporated in Anguilla.” One of Sarao’s “wealth management assistants” described the latter company, in an email dated November 22, 2012, as having been created as part of “tax planning work” undertaken on the trader’s behalf.

In this connection, a representative of Sarao explained in a December 11, 2012 email that “the majority of [Sarao’s] funds are offshore and what remaining wealth he has in the entity [ie, Nav Sarao Futures Limited] is tied up in complex structures”.

Sarao was granted £5.05 million bail by District Judge Quentin Purdy at a preliminary extradition hearing at Westminster magistrates’ court yesterday. During the hearing, Judge Purdy said: “£26 million was mentioned and that amount could well buy a home somewhere more lush than Hounslow. So where is it?”

Sarao offered a £5 million surety from one of his trading accounts and his father and two brothers agreed to contribute the remaining £50,000. It was granted on the condition that he stays at his family home between 11pm and 4am. He was expected to be released from custody as early as today.

After graduating from Brunel University, Sarao worked in the City before joining Woking-based Futex as a graduate trainee. He joined the course for would-be traders where they cut their teeth trading with Futex’s accounts.

A former colleague said Sarao would arrive at the Woking office at 10am to avoid paying peak train fares and always wore a tracksuit. He would sit with a hoodie pulled up around his head and eat discounted supermarket sandwiches late in the afternoon.

Adam Whiting, a trader who worked next to Sarao at Futex for six months, tweeted: “One thing I will say is Nav used to wear a tracksuit every day, even when an early millionaire. From what I remember Nav only loved making money, not spending it.”

Neighbours spoke of their surprise at reports that Sarao ran a multi-million-pound trading operation from the three bedroom semi. “They are not showing off with a Mercedes or something like that,” said Harmesh Singh Johal, a friend, gesturing towards the Saraos’ battered Vauxhall Corsa.

Mr Johal added that Sarao’s father had been ill and that his mother had two jobs, one as a pharmacy assistant. Their middle son, Jasvinder, 37, is an optician who lives in Dorking, and the eldest Rajvinder, 40, who lives opposite the family home, works in IT.

A childhood friend of Sarao, Anil Puri, from Hounslow, said: “He was quite sweet — a chirpy chap. He was the youngest out of the lot, and he was the loudest of the lot..”

Sarao was one of two directors of the Hounslow-based operation alongside company secretary Gurmatpal Dusanjh, 58, of Twickenham, who is now thought to be a manager at the National Bank of Abu Dhabi. Miles MacKinnon, 38, a director of the Special Olympics organisation was named as a director of Nav Sarao Futures Ltd from June 2010 to October that year. There is no suggestion he was involved in the allegations against Sarao.