A SUSPECTED rogue trader wept in the dock yesterday as he was charged with fraud and false accounting after losses of £1.3 billion ($A1.98 billion)at UBS, where unauthorised trading may have gone on for at least three years.
One of the charges against Kweku Adoboli, 31, for false accounting, dates back to 2008, raising the possibility that the Swiss banking giant failed to detect wrongdoing over a long period.
Last night the Financial Services Authority, the City of London regulator, announced a joint investigation with the Swiss markets regulator, Finma, into why UBS failed to identify unauthorised transactions and its general risk controls. The investigation will be carried out by a major accountancy firm and be paid for by UBS.
Mr Adoboli, who did not enter a plea, was remanded in custody after a brief appearance at the City of London Magistrates’ Court.
Wearing a blue jumper, white shirt, black suit trousers and black shoes, the Ghanaian spoke only to confirm his name, address and date of birth.
He sat attentively throughout the 15-minute hearing but at one point a court clerk passed him a tissue and he wiped away tears.
The packed court heard that he joined the Swiss bank UBS in 2002 and worked in the back office before becoming a trader. The former University of Nottingham student, who lives in a rented apartment in Stepney, East London, had been arrested at home at 3.30am on Thursday after his employers called the police. He is accused of two counts of false accounting relating to dishonestly falsifying a record of an exchange traded fund (ETF). He also faces one count of fraud by abuse of position. Each charge carries a maximum sentence of ten years.
It was previously believed that Mr Adoboli might have been caught out by the stock market turmoil of the past month, but the timeframe of the charges will lead to difficult questions about how Switzerland’s largest bank could have missed alleged false trades for such a long period of time.
Mr Adoboli worked on the delta one trading desk, where traders bet on the direction of share prices. This is meant to be relatively safe because the bet is hedged with a bet the other way. His manager on the desk was John Hughes, who left the bank on Thursday as losses were made public.
Simon Morris, of law firm CMS Cameron McKenna, said that if the 2008 charge against Mr Adoboli related to unauthorised trading, “UBS will need to explain how his activities went undetected for so long – why neither its monitoring systems nor his managers managed to pick this up”.
The fraud charge against him, which is said to have taken place between January 1 and September 14 this year, reads: “While occupying a position, namely being a senior trader with Global Synthetic Equities, in which you were expected to safeguard, or not to act against, the financial interests of UBS Bank, you dishonestly abused that position intending thereby to make a gain for yourself, causing losses to UBS or to expose UBS to risk of loss.”
Mr Adoboli was represented by Kingsley Napley, the London-based law firm that represented the British rogue trader Nick Leeson during his 1995 trial. Leeson lost Barings $1.3 billion and caused its collapse.
Louise Hodges, Mr Adoboli’s lawyer, made no application for bail and he was remanded in custody to appear again on September 22. “This is to allow you to make a bail application,” the magistrate, Carolyn Wagstaff, said. “These are extremely serious charges.”
Mr Adoboli was praised by school and university friends who described him as a confident pupil to whom others turned for help. Leo Burtt, Mr Adoboli’s girlfriend from his time at Ackworth School, West Yorkshire – where he was head boy – described him as “gentle, selfless and kind”, according to one mutual friend. Ms Burtt had maintained such good relations with Mr Adoboli that she asked him to be godfather to her baby when it is born, the friend said.
Other schoolfriends remember Mr Adoboli, son of a senior United Nations official, for giving motivational speeches to 450 pupils.
“Ackworth was a Quaker school and every Thursday morning we’d have a silent meeting, where you could contemplate your thoughts,” said Chrissie Wunna, 30, a pupil in the year below him.
“Once Kweku stood up and told everyone about his parents, how they were good people, how they had made him ambitious and made him dream about achieving his goals, and about how we could achieve anything.”
She added: “He never told jokes and was quite reserved, but he was one of the good guys. He was the epitome of a Goody Two-Shoes. I can’t remember him doing anything wrong.”
Mr Adoboli will face a committal hearing when his case will be transferred to a higher court on October 28.
UBS, which employs 6000 people in Britain, may be vulnerable to shareholder lawsuits if it emerges that there were failures in its controls processes, especially if the problems date back several years. A US law firm, Brodsky & Smith, said it was investigating the possibility of a class action law suit.
The emergence of £1.3 billion of losses from will wipe out one third of UBS’s profits this year and may force it to abandon annual bonus payments to its 65,000 staff. The expected loss will cancel out the saving UBS was hoping to make from sacking 3500 staff.
The trading scandal may also prompt UBS to reduce or shut its investment bank. There was speculation yesterday that the Swiss Government has been putting pressure on UBS to walk away from investment banking after its heavy losses in recent years.