IAAM: Busted!

CFTCSherlock Holmes, Hercule Poirot, Nero Wolfe and Miss Marple are all smiling today as another crime of the century has been solved. The investigators for the Commodity Futures Trading Commission (CFTC) with the statute of limitations closing in, have pinpointed the culprit responsible for the billion dollar equity flash crash in May of 2010.

The mastermind has kept his identity well concealed since the CFTC alleges that he has made over $40 million in the last five years from spoofing. (A technique whereby hundreds of thousands of buy orders are placed by a computer algorithm then quickly cancelled. The impression is given that there is a significant buying interest which suggests prices would soon rise. Thus, other market participants, mostly retail individuals, will buy what the “spoofer” is selling).

The initial report in 2010 given by the CFTC was that a conclusion had been reached and verified that “high frequency trading (spoofing) was not at fault in the flash crash”. Several million dollars were spent by the CFTC to determine that a “fat finger” was to blame.

Now it can be revealed that the CFTC’s brilliant investigative minds had apparently created a smokescreen so that the real criminal would feel at ease.

Navinder Singh Sarao, a young British national, it’s never an American, did not fall for the ruse as he lived with his parents and shows no signs of the typical 1/10th of 1% spending habits. No planes, no champagne, no Monte Carlo, just dinner and a sweatshirt with Mom and Dad.

The CFTC has not divulged how they broke the case nor where Sarao’s 40 million has been stashed. Access to the press has been eliminated as Mr. Sarao’s bail has been set at 5 million pounds, an amount usually reserved for Class A felons, murders and rapists. Conviction is a certainty and decades of jail time await this “hardened criminal”. Spoofing, however, as utilized by various hedge funds and most notably high frequency traders of the Too Big Too Fail banks is alive and well and occurs millions of times every single day across all global markets. Much to the chagrin of the CFTC. So many criminals so little time.

I am so glad that once again such patriotic stalwarts as Jamie Dimon, CEO of JP Morgan, Lloyd Blankfein, CEO of Goldman Sachs and even John Corzine, former Goldman Sachs CEO, Senator, Governor and CEO of M.F. Global have been exonerated from any implication.

As always, it is some kid in some mailroom somewhere who is responsible for the continued demise of a once great financial system.

Now the Sherlocks, Hercules, Neros and Miss Marples of the CFTC can turn their attention to the October 15th, 2014, treasury flash crash and the March 18th, 2015, U.S. dollar flash crash. Perhaps it will find that some Chinese grandma operating with her newest ipad or a Russian teenager’s newly discovered FX trading platform will be at the center of these financial events.

I am sure that NOW that confidence in our broken system has been restored everyone is ready and willing to participate in the great wheel of fortune called The Markets.

Oops-spoofing was spotted in the E Mini Market today.

It may not be safe to come back into the water just yet.

The CFTC is on it-I think?

We will keep you informed!

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With his passion for economics, Bill Tatro has been entertaining audiences on the radio and in seminars for over 30 years. Bill’s dynamic and no nonsense style has made him one of his stations’ most popular show hosts.