Adoboli’s ETF Desk Became Profit Oasis for UBS: Lawyer

Kweku Adoboli, the former UBS AG (UBSN) trader on trial for fraud, went to “more elaborate lengths to make money” than others did as he produced large profits for the bank’s ETF desk, his ex-colleague John Hughes told a judge.

Hughes, testifying for a third day at Adoboli’s fraud and false accounting trial in London, agreed with comments by Adoboli’s lawyer that the exchange-traded-fund desk was an “oasis of profit” mainly as a result of Adoboli.

“Everybody, on average, was getting it wrong, but you,” Charles Sherrard said of the ETF desk to Hughes, who testified wearing a black blazer. The pair’s success was the envy of other traders who wanted to “take over” the desk, Sherrard said.

Prosecutors charged Adoboli in relation to unauthorized trades on which UBS lost $2.3 billion. The former trader admitted hours before his arrest in September last year that he had risked $5 billion on Standard & Poor’s 500 futures and a further $3.75 billion in the German futures market, a former manager testified. Adoboli has pleaded not guilty.

Sherrard read out portions of an internal UBS communication in which another banker described Adoboli and Hughes as a “perfect pair” with opposing personalities -- one being disciplined and the other a “lunatic,” though the person didn’t indicate “which was which.”

While their outward personalities would have suggested it was the other way around, Hughes said it was well known that he was the disciplined one. Adoboli, with his bold trading practices, was the lunatic, he said.

Winning Floor

Sherrard described a single day in which his trading desk went from an $800,000 loss to a $300,000 profit, while other desks on the cash trading floor suffered. Adoboli told Hughes in an electronic message that day, “Would have been nice though, to win for the floor.”

Hughes testified earlier this week that Adoboli told him in January 2011 he had a secret account he called his umbrella, which held profits from unbooked trades Adoboli later used to cover losses. Prosecutors say he called it his umbrella because it would protect him “on a rainy day.”

Sherrard, has said Hughes made his own off-book trades, knew of the umbrella account and “at times controlled it.” Adoboli’s actions were “learned behavior,” Sherrard said. Hughes was fired by the bank for gross misconduct.

Today, Sherrard cited an internal e-mail in which Hughes discouraged Adoboli from “relieving” part of the umbrella after a good trading day, saying it proved he began to assert influence over the fund.

“There’s you exercising a degree of control over the umbrella,” Sherrard said. He also indicated Hughes had talked about the fund with other people, and that it wasn’t a secret between him and Adoboli.

Hughes disagreed with Sherrard’s claim that the umbrella helped him and Adoboli gain clients by allowing them to trade with more confidence, boost profit and build a reputation in the City, the name for London’s oldest financial district.

To contact the reporter on this story: Erik Larson in London at elarson4@bloomberg.net

To contact the editor responsible for this story: Anthony Aarons at aaarons@bloomberg.net

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Adoboli Went to ‘Elaborate Lengths’ to Make Money, Hughes Says

Chris Ratcliffe/Bloomberg

Prosecutors have charged Kweku Adoboli with fraud and false accounting tied to unauthorized trades on which UBS AG lost $2.3 billion.

Prosecutors have charged Kweku Adoboli with fraud and false accounting tied to unauthorized trades on which UBS AG lost $2.3 billion. Photographer: Chris Ratcliffe/Bloomberg

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Former UBS Trader John Hughes

Chris Ratcliffe/Bloomberg

John Hughes, former senior trader on the ETF desk at UBS AG, is seen covered by a jacket hood while leaving Southwark Crown Court in London.

John Hughes, former senior trader on the ETF desk at UBS AG, is seen covered by a jacket hood while leaving Southwark Crown Court in London. Photographer: Chris Ratcliffe/Bloomberg