1: "By allegedly placing multiple, simultaneous, large-volume sell orders at different price points—a technique known as 'layering'—Sarao created the appearance of substantial supply in the market."
Is the allegation that he placed multiple, simultaneous large-volume sell orders at different price points?
There's a record of that, and there's no need for allegations.
If the allegation is that he did this to create the appearance of substantial supply in the market, the word "allegedly" needs to be moved either to the from ("Allegedly, by placing...") or to the actual allegation ("Sarao allegedly created...").
2: "As part of the scheme, Sarao allegedly modified these orders frequently so that they remained close to the market price, and typically canceled the orders without executing them."
Again, what is the allegation? The frequency of the modification, or the the effect of them remaining close to market price, or that they there were typically canceled before executing? There are records of all of this. There are no need for allegations for this unless Sarao is claiming it wasn't him placing, modifying, and canceling the orders, or is claiming that their records of the orders, their modifications, and their cancellations are incorrect.
3: "When prices fell as a result of this activity, Sarao allegedly sold futures contracts only to buy them back at a lower price."
Again, why is this alleged? It happened or it didn't, and it's trivial to check. Allegations come into play only when the facts are in question (if Sarao says "NUH-UH! Wasn't me!!").
4: "Conversely, when the market moved back upward as the market activity ceased, Sarao allegedly bought contracts only to sell them at a higher price."
Did this happen or didn't it? Is the allegation that this happened? Or is the allegation that he did something wrong? Isn't the normal practice to buy at x and sell at y, hoping to minimize x and maximize y?
Cut the shit. There's exactly 1 allegation here. He placed many large, frequent orders he never intended to execute (or sell to others) in an attempt to manipulate the price in order to profit.
There are 3 things wrong about this scenario:
1 - The market reacts with such volatility based on his orders (not his fault, but it's a problem with the market).
2 - He defrauded the market by placing significant orders in bad faith.
3 - He used insider knowledge (his own knowledge of how he was manipulating the market) to profit.
3 is a crime people go to jail for.
I doubt 2 is a specific crime, but I'm sure they'll try to nail him for it, or at least use it as justification for hitting him hard with 3. If you hit him with 2 then you need to hit every major fucking player on the market. This isn't going to happen, but it should.
1 is the core problem that allows this bullshit. The only thing that fixes it is the same thing that fixes 90% of the problems with the stock markets. Kill high frequency trading. The market (not just the major players and their algorithms on the floor) needs time to read news, analyze earning reports, and look at existing orders before taking action. Microsecond trading is a joke. 10 minutes would be sane, and I'd tack on a temporary lock on trades for an individual security whenever there's some sort of earnings report or similar info dump about to occur.
Further, I'd have all traded placed within the window (10 minutes, 1 hour, whatever) execute evenly, in random order, so someone dumping 10000 shares and someone dumping 100 shares will end up with 9090 and 90 if someone buys 20. To prevent abuse (someone dumping 10 orders of 1000 each getting 10 times the action of someone dumping 1 order of 10000), you'd tie up all orders within a window by the seller's ID and strictly regulate the IDs of the major players so that "Fund Manager X" at "Firm A" and "Fund Manager Y" and "Firm A" have the same ID, but "Joe Blow" sitting at home and placing personal trades through "Firm B" has his own ID separate from "Dick Lickus" who also uses "Firm B".