Prospects looked bleak for Navinder Sarao, a 36-year-old London-based stock index trader, when he was arrested in February 2015 and charged with 22 criminal counts of illegal spoofing and manipulation of the E-Mini S&P 500 futures contracts traded on the Chicago Mercantile Exchange. The criminal charges also implicated Sarao in the May 6, 2010 "Flash Crash," when the Dow Jones Industrial Average plunged 600 points in five minutes, around a 6% decline. Sarao was charged with one count of wire fraud, 10 counts of commodities fraud, 10 counts of commodities manipulation, and one count of "spoofing." Those combined charges carried a maximum prison sentence of 380 years. But in a Chicago courtroom in January, nearly a decade after the flash crash, he received a remarkably lenient sentence of one year of home confinement. What explains such a light sentence for the man blamed for causing one of the most turbulent days in market history?

His arrest and the charges attracted notoriety and extensive press coverage both in the United States and U.K. Sarao was frequently portrayed as the poster boy for financial wrongdoing, which earned him the "Flash Crash trader" moniker. He was also frequently referred to as the "Hound of Hounslow," a reference to the London borough where he resided and worked out of his childhood bedroom in his parent's home.

Fast forward to Jan. 28, 2020: Sarao stood before Judge Virginia Kendall in Chicago to be sentenced for his crimes. A lot had happened in the interim. While incarcerated and awaiting extradition in the U.K., Sarao was tested and diagnosed with severe Asperger's syndrome, a form of autism. Upon his arrival in the U.S. Sarao admitted his guilt, pleaded down to just two charges (which still carried a 30-year maximum sentence), and paid more than $7.6 million in partial satisfaction of a $12.8 million civil forfeiture order. Sarao represented this to be, and the government believed this to be, his only liquid assets. Sarao also began to cooperate with the U.S. Department of Justice, which described the information he provided as "extraordinarily timely, complete, truthful and helpful to the government."

Still, the advisory U.S. Sentencing Guidelines recommended six and a half to eight years imprisonment. But after considering Sarao's unique circumstances surrounding his cooperation, and the role Asperger's syndrome played, as well as the DOJ's highly unusual recommendation for leniency, Judge Kendall imposed just one year of home confinement.

Sarao's story is one of transformation. Initially portrayed as the quintessential financial villain facing a lifetime in prison, Sarao, in time, became viewed as the model cooperating defendant and a sympathetic figure with a disability deserving of extraordinary leniency.

Anti-spoofing Enforcement Under the Dodd-Frank Act. On July 21, 2010, President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act in order to reduce risk, increase transparency, and promote market integrity. The legislation prohibited spoofing, briefly described in the statute as transactions that involved "bidding or offering with the intent to cancel the bid or offer before execution." It was clear after Sarao's arrest that this silly-sounding trading tactic had become weaponized in the era of high-speed trading.

The first criminal case under the Dodd-Frank anti-spoofing provision was brought against Michael Coscia in October 2014. Coscia was tried, convicted, and served a three-year prison term. That conviction and the constitutionality of the Dodd-Frank anti-spoofing provision were later upheld by the Seventh Circuit on appeal. The case filed against Sarao in February 2015 was only the second criminal spoofing case ever brought under Dodd-Frank. Since that time, the DOJ has initiated spoofing-related prosecutions against at least 20 other parties, and indications are there will be more to come.

Sarao's Spoofing and the Myth He Caused the 'Flash Crash'. According to his plea agreement, Sarao's intent behind entering a multitude of spoof orders was to create materially false and misleading impressions of supply and demand in the market. It was Sarao's further aim to induce other market participants to react to his false spoof orders to buy or sell futures contracts at terms that otherwise they would not have accepted. Sarao's spoof orders, he admitted, had the additional purpose of artificially depressing or inflating the price of E-Mini futures contracts, the market where he was most active.

Moreover, according to the criminal complaint, Sarao's trading was directly connected with the Flash Crash. On that day, Sarao entered at least 85 spoof orders, constituting over 20% of all E-Mini S&P futures contract sell orders visible to the market.

While the perception that Sarao was a primary mover behind the Flash Crash has gained a place in popular lore, that notion has been suspect from the get-go, and has been further debunked over time. As early as September 2010, the CFTC and SEC issued a joint report which was wholly silent regarding Sarao's role in the market's steep decline. A 2017 academic paper co-authored by former SEC Commissioner Joseph Grundfest also found that Sarao's conduct had little impact on market prices on the day in question.

At sentencing, Judge Kendall queried Sarao's lawyer, Dechert's Roger Burlingame, on this point. Burlingame responded by comparing the Flash Crash to a traffic jam and asserted Sarao was the cause of the Flash Crash inasmuch as anyone who is in a traffic jam is the cause of that traffic jam. The judge appeared to be satisfied with that explanation.

Extraordinary Cooperation Warrants Extraordinary Leniency. In sentencing him to one-year home confinement, Judge Kendall recognized the extensive and substantial assistance Sarao provided to the government and how he illuminated the government's understanding of spoofing practices, which had only been recently criminalized at the time of his arrest. The government acknowledged that Sarao had engaged in numerous hours-long debriefing sessions with the government. Sarao had even provided prosecutors with videotapes documenting his own spoofing activity, as well as that of others. Sarao initially created these videos to substantiate numerous complaints he had lodged with the Chicago Mercantile Exchange about what he thought was cheating and improper trading occurring in E-Mini S&P futures; trading that had left him with the short end of the stick. In the end, the government benefited substantially from Sarao's dogged pursuit of a competitive advantage and his extraordinary skill at recognizing trading patterns, an ability related to his Asperger's syndrome.

Judge Kendall also acknowledged Sarao's role in assisting the government in its ill-fated investigation, prosecution, and trial of software developer Jitesh Thakkar. Sarao had engaged Thakkar to create software later used in furtherance of his illegal trading. Despite the fact that Thakkar's prosecution ended in a mistrial, the DOJ credited Sarao for his candid and forthright testimony over the course of two trial days, which included a thorough and extensive cross examination by Thakkar's attorney.

The judge also credited Sarao's settlement with the CFTC, which required him to pay nearly $39 million dollars in penalties, as well as trading and registration bans.

Sarao's Asperger's Syndrome. Before sentencing Sarao to one-year home confinement, Judge Kendall stated that she had a good understanding of autism, and indeed that understanding informed her sentencing decision. She noted that Sarao had no criminal history and that it was highly unlikely that he would return to any criminal activity. Notably, she pointed out that autism impacts the mens rea, or the ability to appreciate that particular conduct is wrongful and thus the ability to form criminal intent. She also recognized the unique analytical abilities and talents stemming from Asperger's syndrome. Crucially, the judge also recognized that Sarao's autism resulted in heightened sensitivity to light and sound, difficulty with social situations, and agreed that Sarao would experience severe difficulties if incarcerated.

After Sarao's sentencing, his attorney spoke for his client, saying "Navinder is overjoyed to soon be putting this behind him, get home to Hounslow, and move on with life." Sarao's wild 10-year odyssey may be behind him, but criminal prosecutions under Dodd-Frank's spoofing provision are surely just getting started.

Brad Rosen is analyst for the securities group of Wolters Kluwer Legal & Regulatory U.S.