‘Flash crash’ trader linked to network now under investigation
LONDON — When British trader Navinder Singh Sarao planned to raise money to launch a new investment fund in 2010, he was put in touch with David Cosgrove, an Irishman who had set up dozens of such funds in offshore tax havens.
The NAV Sarao Milking Markets Fund was soon registered in Mauritius as part of Cosgrove’s financial network. The stuccoed Hounslow, England, home where Sarao traded U.S. and European stock futures became a new outpost in a growing empire of funds overseen by Cosgrove.
Five years later, Sarao is in a London prison, charged by U.S. authorities with market manipulation that contributed to the U.S. stock market “flash crash” of 2010. Meanwhile, regulators in Mauritius and Guernsey shut down Cosgrove’s network of funds this year and are investigating the funds’ oversight and valuation.
A lawyer for Sarao, who denies the U.S. criminal and civil charges, declined to comment on the fund. Its existence and connection to Cosgrove hasn’t previously been reported. Cosgrove said he’s working with regulators on their investigations and denies any wrongdoing.
The intersection of the two men’s paths casts a light on a murky, offshore marketplace connecting unsophisticated investors with lightly regulated offshore funds. It also illuminates the far-flung business activities of Sarao, who has taken on folk hero status among supporters who view him as a scapegoat for the 2010 crash.
Funds established through companies controlled by Cosgrove and his South African business partner, Jacobus Kellermann, raised hundreds of millions of dollars from retirees and expatriates living in Asia, South America and the Middle East. This was usually done via financial advisers who collected big commissions to steer clients into the funds, according to marketing documents for the funds and people involved in the sales.
At the heart of the operation was Belvedere Management Ltd., a Mauritian company owned by Cosgrove and Kellermann that provided the funds with back-office services.
Related companies owned by the two men also helped to manage some of the funds’ investments, which ranged from pools of other funds to European penny stocks, exotic hardwood plantations and rare earth metals.
After complaints from some fund investors over losses, authorities in at least five countries suspended or took enforcement action against funds linked to Cosgrove and his group this year, according to public statements by the authorities. All of the Mauritius and Guernsey funds were taken over by regulators this spring.
A spokesman for the Mauritius regulator said it is still investigating the funds and working with global counterparts. A spokesman for the Guernsey regulator said the matters remain ongoing.
U.S. authorities say that Sarao’s trading strategy, allegedly entering and canceling orders in futures contracts to artificially move their prices, involved an illegal technique known as “spoofing.” Such trades by Sarao on May 6, 2010, contributed to a sharp fall in stocks, the U.S. authorities allege.
Before his April arrest, the process earned Sarao at least $40 million, according to the U.S. complaints against him. To store the growing wealth, Sarao set up a network of offshore companies, the U.S. complaints say.
On July 19, 2010, the NAV Sarao Milking Markets Fund was registered in Mauritius as part of an umbrella fund running two dozen other strategies, with Cosgrove as a director. Sarao three months earlier registered a vehicle with a similar name in the Caribbean island of Nevis.
At the time, “there was no controversy around this individual,” Cosgrove said. He said the fund never operated or had outside investors after being set up, so it eventually was turned over to another investment manager and renamed.
Sarao is fighting an extradition request from the U.S. and has been unable to post the $7.8 million bail set by a London court because of a global freezing order on his assets imposed by the U.S.