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Futures Trader Arrested For Causing 2010 'Flash Crash'
New submitter dfsmith writes: Apparently the "Flash Crash" of the stock market in May 2010 was perpetrated by a futures trader in the UK. The US Justice Department alleges that he used a "dynamic layering scheme" of large-volume sell orders to confuse other buyers, hence winning big in his futures trades. "By allegedly placing multiple, simultaneous, large-volume sell orders at different price points—a technique known as 'layering'—Sarao created the appearance of substantial supply in the market. As part of the scheme, Sarao allegedly modified these orders frequently so that they remained close to the market price, and typically canceled the orders without executing them. 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."
So lets say I have a standing order to buy FooBar stock at $50 a share. Its current price is $55. So basically I'm looking to buy on dips.
Tonight it comes out that the CEO has been falsifying all financial reports, and instead of making money for the last 3 years they've lost millions. You don't think I should be able to cancel that buy order due to the new information?
I still have more fans than freaks. WTF is wrong with you people?
You can buy a penny stock. You have a First Amendment right to talk it up on penny stock forums. You can then sell for a profit. No single step is illegal. But if the police prove you intended to pump and dump it you have committed a crime. The whole process, taken together, is a crime if they prove you were trying to convince a bunch of idiots to do something stupid (ie: buy your $.05 penny stock for $0.25) that a) cost them money while b) earning you money. You manipulated the market for your personal gain, and that's bad.
This guy made a series of perfectly legal moves that had the effect of a) costing a bunch of idiots to lose money in the Flash Crash while b) he gained money.