May 6, 2010 was a bad day on Wall Street.  Concern over the European debt crisis — fueled by news of violent anti-austerity protests in Greece the day before  — pushed the S&P down 4% soon after opening. But things soon got even worse, turning May 6, 2010 into "one of the scariest days in stock market history."  That afternoon, the Dow fell 1000 points — roughly 6% — and "mostly rebounded," in a matter of minutes.  In a September 2010 report, the SEC and the CFTC blamed the event on a massive, automated trade of stock market futures contracts , made against a backdrop of "unusually high volatility and thinning liquidity."  Last week, nearly 5 years later, the Department of Justice announced that it has leveled criminal charges against Navinder Singh Sarao for his role in causing the "flash crash."

According to DOJ, Singh — a trader operating out of his parent's house in London, and using off-the-shelf software — sparked the crash by "spoofing."  Spoofing consists of placing large orders with no intention of executing them, in the hope that the size of your trade will convince other traders to mimic your order, moving the price up or down.  The "spoofer" then takes advantage of the new price.  Dodd-Frank specifically outlaws “bidding or offering with the intent to cancel the bid or offer before execution,” but this change took effect two months after the "flash crash."  As a result, Sarao has been charged with other crimes, including wire fraud.

But "fraud" is a false representation of a matter of fact, which misleads a purchaser as to the value of the item purchased.  Even if he had no intention of executing them, Sarao was not obligated to follow through on those orders, and those orders did not mislead any investor researching the value of a stock through corporate filings.  Instead, Sarao's "dupes" were other "flash boys" — high frequency traders who use computer algorithms to anticipate market movements and profit by trading more quickly than other investors.  In fact, it is unlikely anyone had time to be duped in the minutes the "crash" lasted.  For this and other reasons, convicting Sarao of wire fraud is likely to be "complicated."