February 28, 2024

DealBook: Police Charge UBS Trader With Fraud

Kweku Adoboli, charged with fraud in connection with a $2 billion loss at UBS, leaving a London court on Friday.Adrian Dennis/Agence France-Presse — Getty ImagesKweku Adoboli, charged with fraud in connection with a $2 billion loss at UBS, leaving a London court on Friday.

LONDON – London police charged Kweku M. Adoboli, a 31-year-old UBS trader, with fraud on Friday after the Swiss bank said it lost $2 billion because of unauthorized trades.

Mr. Adoboli was charged with false accounting from October 2008 to the of 2009, including falsifying records of exchange-traded fund transactions with a view to personal gain. He was also charged with false accounting for falsifying records from January 2010 to September 14.

The third charge, abuse of position – also from January 2010 to September 14, 2011 — states that as a senior trader of the global synthetic equities, Mr Adoboli acted against the interests of UBS and ”dishonestly abused that position,” aiming to make a personal gain.

The dates in the charges raise renewed questions about UBS’s risk management processes, which the bank’s chief executive, Oswald J. Grübel, had pledged to improve when he took over in 2009.

Given that the charge is for activities as early as 2008, “it would seem there was a systematic pattern of trading,” said Lindsay Thomas, managing director at the risk management consultancy Sustainable Risks and a former director at Britain’s financial regulator. “If you hide it that long, the only way is to hide it in fake client positions.”

The Financial Services Authority, Britain’s equivalent of the Securities and Exchange Commission, and Swiss market regulators said on Friday that they would begin an independent investigation into the bank’s “control failures.” The investigation will focus on the details of the unauthorized trading, on the bank’s control failures and the strength of the bank’s existing controls to prevent fraudulent trading in the investment banking operation.

A spokesman for UBS declined to comment.

But the chairman of UBS, Kaspar Villiger, said Thursday in a speech to a business group in Bern that “it was a very professionally managed case of fraud, possibly by one person acting alone” and that he felt “personally disappointed.”

UBS fired Mr. Adoboli, who lives in Bethnal Green, London, on Thursday, British regulators said.

Mr. Adoboli appeared briefly Friday at a hearing at the City of London Magistrates Court in London’s financial district. He entered and left the courtroom via an internal access door and did not make a plea, speaking only to confirm his personal details.

He sat behind a glass wall alongside two court officers. Wearing a powder blue V-neck sweater, white dress shirt and dark pants, he appeared edgy and initially sweaty, dabbing his cheeks and eyes with a tissue. He smiled several times at the court staff and the crowded press gallery, but mostly kept his eyes on the floor or the ceiling.

The prosecutor, David Levy, said that Mr. Adoboli’s actions had already resulted in losses of $1.5 billion for UBS.

The presiding magistrate, Carloyn Wagstaff, agreed that Mr Adoboli should be kept in custody and appear again at the same court on Thursday for a formal bail hearing. His committal hearing — when a magistrate decides whether there is enough evidence for the case to go to trial — was scheduled for Oct. 28.

Mr. Adoboli was represented in the courtroom by Louise Hodges of the law firm of Kingsley Napley. Ms. Hodges spoke in court only to confirm that her client would not be making an application for bail at this stage, and she declined to comment further to reporters at the court.

Kingsley Napley previously represented Nicholas Leeson, the trader whose $1 billion in unauthorized losses at Barings caused the 1995 collapse of the bank.

The investigation is being conducted by the London police in collaboration with the Serious Fraud Office, the Financial Services Authority and the Crown Prosecution Service.

UBS uncovered the trading losses on Wednesday and called the London police and financial regulators at 1 a.m. on Thursday. Mr. Adoboli was arrested at 3:30 a.m. on suspicion of fraud by abuse of position.

Traders in Europe were still scratching their heads on Friday, wondering how Mr. Adoboli could amass such a large trading loss having worked in a relatively plain-vanilla version of a complex derivatives trading business known as the Delta One desk. “He must have worked with leverage or futures, otherwise it’s almost impossible to make such a big loss,” said one trader in London who did not want to be named because he did not want to be connected to the case.

Britain’s financial regulator, the F.S.A., in the meantime deleted UBS from Mr. Adoboli’s profile on its Web site and changed his status to inactive from active.

While the full details are still being pieced together, the UBS incident bears an unnerving resemblance to the recent financial scandal at the French bank Société Générale. In 2008, Jérôme Kerviel, a trader at the bank, was accused and later convicted of generating $6.8 billion in losses. Both Mr. Adoboli and Mr. Kerviel worked on Delta One desks.

The rogue trading case is rough blow for UBS, which has been struggling to regain its footing since the financial crisis. The trading loss is about the same size as the planned cost reductions, including 3,500 job cuts, that Mr. Grübel announced earlier this year.

This post has been revised to reflect the following correction:

Correction: September 16, 2011

An earlier version of this article misspelled the name of the law firm that is representing Kweku M. Adoboli. It is Kingsley Napley, not Kingsley Apley.

Article source: http://dealbook.nytimes.com/2011/09/16/police-charge-ubs-trader-with-fraud/?partner=rss&emc=rss

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