Navinder Sarao, the British trader accused by U.S. authorities of contributing to the 2010 stock market "flash crash," pleaded guilty in Chicago on Wednesday, becoming the second trader to be convicted of using a bluffing tactic called "spoofing" that was made illegal by the Dodd-Frank law.

Mr. Sarao, a 37-year-old West London trader who had operated out of his home, pleaded guilty to one count of wire fraud and one count of spoofing, the U.S. Justice Department said.

Prosecutors had charged Mr. Sarao in April 2015 with helping to cause the sharp drop in stocks May 6, 2010.

He lost a bid to avoid extradition from the U.K. last month and was extradited Monday.

As part of his plea, Mr. Sarao admitted using an automated trading program to manipulate the market for S&P 500 futures contracts. Mr. Sarao, who is cooperating with authorities, was released on bail secured by U.K. properties owned by his parents and his brother. He is allowed to travel to the U.K., a spokesman for the U.S. attorney's office said.

He faces up to 20 years in prison for the wire fraud conviction and up to 10 years for spoofing. The Commodity Futures Trading Commission also asked a federal court to sign off on a proposed civil settlement requiring Mr. Sarao to pay $38 million in sanctions and to submit to a permanent trading ban.

In July, trader Michael Coscia was sentenced to three years in prison after a Chicago jury found him guilty of manipulating commodity futures prices in a scheme that yielded him $1.4 million.

Prosecutors said Mr. Sarao admitted that he made at least $12.8 million in illicit gains through his trading.

Spoofing is an illegal bluffing tactic in which a trader enters large orders to buy or sell a contract in an effort to dupe other traders into thinking the price is rising or falling. The spoofer then quickly cancels the original orders and places other orders that take advantage of traders who took the bait.

Mr. Sarao's case caught the imagination of the British public after former associates described the trader's low-key lifestyle and penchant for penny pinching despite his alleged riches. He was released on bail in August after a four-month detention in jail.

A lawyer for Mr. Sarao didn't immediately respond to a request for comment.

"This case shows just how seriously we take threats to the integrity of our markets, from wherever they emanate," said CFTC enforcement director Aitan Goelman. The regulator first developed the case with the help of a whistleblower who brought analysis to the CFTC after spending hundreds of hours investigating the flashcrash.

Write to Aruna Viswanatha at Aruna.Viswanatha@wsj.com

(END) Dow Jones Newswires

November 09, 2016 19:05 ET (00:05 GMT)

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