Almost five years ago the Dow Jones Industrial Average dropped about 600 points in five minutes, creating chaos in the markets and huge losses for many. The market debacle became known as the flash crash. The causes were investigated and debated. The SEC compiled a report. The debate continued.

Now the Department of Justice claims to have found part of the answer – a foreign trader conducting a manipulation scheme, at least according to charges recently unsealed. U.S. v. Sarao, Case No. 1:15-cr-00075 (N.D. Ill. Filed Feb. 11, 2015). Defendant Navinder Singh Sarao is a futures trader from Hounslow, United Kingdom. A ten count criminal complaint charges him with wire fraud and commodities manipulation.

Mr. Sarao used an automated program to manipulate the market for E-Mini S&P 500 futures contracts on the Chicago Mercantile Exchange on May 6, 2010, contributing to the overall market chaos that day the Government claims. The scheme apparently was not new or novel. It involved the use of the E-Mini which is an index futures contract based on the Standard & Poor’s 500 index. The manipulation techniques employed was dynamic layering.

Mr. Sarao implemented the scheme by placing multiple orders simultaneously to sell at various price points. This created the appearance of market liquidity and substantial supply. The orders were modified periodically to ensure they were priced near the market. This created an imbalance in the market for E-minis and exerted pressure on the market, although the orders were typically cancelled. When the market fell Mr. Sarao is alleged to have used futures contracts to repurchase at a lower price point. When it rose he took the opposite action.

Another manipulative trading technique contributed to the overall chaos, according to the charging papers. Mr. Sarao is alleged to have “flashed” a large 2,000 lot sell order on one side of the market, executed another large order on the other side of the market and then cancelled the order. This created price movement which Mr. Sarao exploited, according to the criminal complaint. On May 6 five years ago as the price of the E-mini fell, the DJI followed.

The Government is currently seeking extradition of Mr. Sarao from the U.K. to Chicago for trial.