The Department of Justice determined not to re-prosecute Jitesh Thakkar, an alleged programmer for purported flash crash spoofer Navinder Sarao. This decision followed the declaration of a mistrial on April 9, 2019, by the judge who presided over the criminal trial of Mr. Thakkar. Previously, the judge – The Hon. Robert Gettleman of the United States District Court for the Northern District of Illinois – acquitted Mr. Thakkar of the criminal charge of conspiracy to commit spoofing. The jury hearing Mr. Thakkar’s case voted 10- 2 against convicting him of two counts of aiding and abetting spoofing. (Click here for more background in the article “Mistrial Declared in Prosecution of Purported Programmer for Alleged Flash Crash Spoofer” in the April 14, 2019 edition of Bridging the Week.)
My View: Mr. Sarao pleaded guilty in November 2016 to criminal charges brought against him by the DoJ for engaging in manipulative conduct through spoofing-type activity involving E-mini S&P futures contracts traded on the Chicago Mercantile Exchange between April 2010 and April 2015, including illicit trading that contributed to the May 6, 2010, “Flash Crash.” On the same day, the CFTC announced that Mr. Sarao settled civil charges it had brought against him and Nav Sarao Futures Limited PLC, a company he controlled, related to the same essential conduct. (Click here for additional details in the article “Alleged Flash Crash Spoofer Pleads Guilty to Criminal Charges and Agrees to Resolve CFTC Civil Complaint by Paying Over $38.6 Million in Penalties” in the November 13, 2016 edition of Bridging the Week.)
Mr. Thakkar was initially named in a criminal action by the DoJ and a civil action by the CFTC in January 2018, for purportedly developing “back-of-the-book” software that was allegedly used by Mr. Sarao to effectuate his spoofing activities. In court papers, Mr. Thakkar claimed that he never was told by Mr. Sarao the purpose of his software request, but in any case, he did not develop the actual software; he assigned the task to other programmers at his company – Edge Financial Technologies, Inc.
Mr. Thakkar’s CFTC action was stayed in December 2018 pending resolution of Mr. Thakkar’s criminal case. Although the standard of proof the CFTC would have to satisfy to gain a judgment against Mr. Thakkar in its enforcement action is less than what the DoJ required in its criminal case (a preponderance of the evidence vs. beyond reasonable doubt), the Commission should exercise its discretion and voluntarily drop its enforcement action against Mr. Thakkar. Unless the CFTC has a smoking gun it did not make available to the DoJ, it does not appear that there is compelling evidence that Mr. Thakkar was aware that software developed by his firm would be used by Mr. Sarao for illicit purposes.
It should not be case that a software developer or provider can be held liable for the illicit use of the software absent express knowledge of the user’s illicit intent. Simply being aware that that software could potentially be used for an illegal purpose should not be enough to warrant prosecution by the CFTC let alone by the DoJ. Otherwise the potential for regulatory liability will chill if not freeze trading software development.