>>So these guys figured out how to second-guess somebody's trading algorithm. How in hell is that a crime?
If they had figured out how to predict where somebody else's algorithm was trading, and trade against it for profit, they would not be in trouble.
What they did was figure out how somebody else's algorithm would react to stimulus, then entered created that stimulus, then traded against the result.
They entered orders that had no intention of getting a trade (and indeed would have been unhappy to have traded because they were unnaturally high bids or low offers). These orders gave the impression to both people and software that the market had changed for real. The algorithm followed the "fake" data and made too high of a bid or too low of an offer. They then cancelled their "fake" orders and instantly entered real orders on the opposite side to hit the algorithm.
This has been going in (sans computers) for decades, and is illegal in most regulated markets.
It is similar to the idea of leaking fake news and trading against the move and then making a profit when people figured out it was fake.