UBS ‘rogue’ trader Adoboli behind London’s biggest fraud, claims QC

In Blog by Ian Fraser0 Comments

September 14th, 2012

Kweku Adoboli, a former UBS’s trader, was a  ‘rogue’ who fraudulently gambled away the bank’s money, “cooked the books”, doctored documents, faked profits, fabricated clients and lied to his bosses to boost his earnings power, according to an opening statement from prosecutor Sasha Wass QC in Southwark Crown Court today.

Wass, of 6 Kings Bench Walk Chambers, said Adoboli had risked ever-greater sums between 2008 and September 2011 in the hope of disguising his losses before he was caught out in September last year. She said:

“Mr Adoboli’s motive was to increase his bonus, his status, his job prospects and his ego. Like most gamblers he believed he had the magic touch. Like most gamblers, when he lost, he caused chaos and disaster to himself and all of those around him …. The total losses to UBS [£1.4 billion] “arose purely as a result of Mr Adoboli’s fraudulent deal making, which amounted to naked gambling.”

She said that at one stage Adoboli’s liabilities, which were not properly hedged, rose to nearly $12bn and could well have destroyed UBS.

“The scale of Mr. Adoboli’s gambling was so large and unchecked, he could quite easily have approached and even exceeded the limits of the bank’s resources. He was a gamble or two away from destroying Switzerland’s largest bank for his own benefit.”

She said Adoboli’s salary rose tenfold, to £350,000 between 2006 and 2010 and claimed that he had learnt how to circumvent the bank’s internal controls when he worked in the UBS back office. Wass said that Adoboli racked up the  losses undetected through three means:-

  1. He often exceeded the official daily trading limit per employee of $100m.
  2. He failed to hedge trades by making balancing trades to mitigate potential losses
  3. He falsified data so as not to record his trades properly, often inventing false clients and trades.

In the summer of 2011, UBS insiders began to ask questions about Adoboli’s trading account, especially William Steward, a chartered accountant in the UBS back office. Wass said: “Each time that Mr Adoboli was questioned he gave a plausible explanation for his trades. Mr Adoboli was able to draw on his experience of working within the control system to sidestep the questions.” But it wasn’t long before what Wass described as Adoboli’s elaborately fraudulent system started to unravel.

“You will see, in the early days, Mr Adoboli’s dishonest practices had a measure of success. He was cheating the system, and he appeared to be getting away with it. On 14 September of last year, his system crashed like a car hitting a wall at high speed. He was left with no choice but to admit exactly what he had been up to.”

Under intense scrutiny and aware a number of trades were “about to hit the buffers”, Adoboli panicked and walked out of  UBS’s London office, saying he had to see a doctor. Using his home email account he then sent his bosses an email which, Wass argued, was a “bombshell” that revealed his guilt.

Adoboli, from Whitechapel, east London, denies four counts of fraud and false accounting between October 2008 and September 2011. The case continues. It remains to be seen to what extent Adoboli’s counsel will argue that he was driven to do what he did because he worked for a “rogue institution” in a system that has itself gone rogue. If I was them, I think I would argue that the prosecution’s line is an elaborate smokescreen designed to divert attention away from management collusion and inadequate risk management at the Zurich-headquartered bank.

Here is the transcript of  the email, headlined “An explanation of my trades” and dated 14 September 2011, that Adoboli, who is Ghana-born and educated at at English private school, sent to Steward, the back office accountant who detected discrepancies in his trades.

Kweku Adoboli’s “Bombshell Email” of September 14th, 2011

Dear Will,

It is with great stress that I write this mail. First of all the ETF [exchange-traded funds] trades that you see on the ledger are not trades that I have done with a counterparty as I have previously described.

I used the bookings as a way to suppress the PnL losses that I accrued through off book trades that I made. Those trades were previously profit making, became loss making as the market sold off aggressively through the aggressive sell-off days of July and early August. Initially, I had been short futures through June and those lost money when the first Greek confidence vote went through in mid June.

In order to try and make the money back I flipped the trade long through the rally. Although I had a couple of opportunities to unwind the long trade for negligible loss, I did not move quickly enough for the market weakness on the back of the first back macro data and then an escalation eurozone crisis cost me the losses you will see when the ETF bookings are cancelled. The aim had been to try and make the money back before the September expiry date came through but I clearly failed.

These are still live trades on the book that will need to be unwound. Namely a short position in DAX futures [which had been rolled to December expiry] and a short position in S&P500 futures that are due to expire on Friday.

I have now left the office for the sake of discretion. I will need to come back in to discuss the positions and explain face to face, but for reasons that are obvious, I did not think it wise to stay on the desk this afternoon.

I will expect that questions will be asked as to why nobody was aware of these trades. The reality is that I have maintained that these were EFP [exchange for physical] trades to the member of my team, BUC [the accounts department], trade support and John Di Bacco.

I take responsibility for my actions and the shit storm that will now ensue. I am deeply sorry to have left this mess for everyone and to have put my bank and my colleagues at risk.

Thanks, Kweku.

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