Ex-UBS Trader Adoboli Gets 7 Years for London Fraud

Nov. 20 (Bloomberg) -- Bloomberg's Ryan Chilcote reports that Former UBS AG trader Kweku Adoboli was sentenced to seven years in jail for fraud in relation to a $2.3 billion loss, the largest from unauthorized trading in British history. He speaks on Bloomberg Television's "In The Loop."

Former UBS AG (UBSN) trader Kweku Adoboli was sentenced to seven years in jail for fraud in relation to a $2.3 billion loss, the largest from unauthorized trading in British history.

Adoboli was convicted today following a two-month-long London trial. He had pleaded not guilty and argued that UBS managers pushed traders to take too many risks and that rule- breaking at the bank was rampant. The 32-year-old was cleared of four counts of false accounting.

“Your fall from grace as a result of these convictions is spectacular,” Judge Brian Keith told Adoboli when he sentenced him. “You are profoundly un-self-conscious of your own failings. You were arrogant enough to think that the bank’s rules for traders didn’t apply to you.”

The conviction means Adoboli will be mentioned in the same breath as rogue traders Jerome Kerviel, who was found guilty of causing a 4.9 billion-euro ($6.3 billion) trading loss at Societe Generale SA (GLE), and Nick Leeson, the former derivatives trader jailed for losses that brought down Barings Plc in 1995. While UBS warned investment-bank employees to report signs of illicit trading after Kerviel’s loss, Adoboli said he could only reach the bank’s goals set by ignoring such warnings.

Photographer: Simon Dawson/Bloomberg

Former UBS AG trader Kweku Adoboli. Close

Former UBS AG trader Kweku Adoboli.

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Photographer: Simon Dawson/Bloomberg

Former UBS AG trader Kweku Adoboli.

Adoboli must serve at least half of the seven-year term, Keith said. That amount will be reduced by the amount of time he has already served. He was immediately taken into custody after the sentencing and denied bail, pending any appeal.

Staggering Amount

“Behind all the technical financial jargon in this case, the question for the jury was whether Kweku Adoboli had acted dishonestly, in causing a loss to the bank of $2.3 billion,” said Andrew Penhale, deputy head of fraud at the Crown Prosecution Service. “The amount of money involved was staggering, impacting hugely on the bank, but also on their employees, shareholders and investors.”

Ruwan Weerasekera, a UBS investment-bank executive, testified Oct. 9 that losses from Adoboli’s trades could have reached $12 billion.

Wearing a navy suit, white shirt and red tie at the hearing today in Southwark Crown Court, Adoboli reacted to the jury’s verdict by nodding his head and looking down. He has admitted causing the loss, but said he didn’t do it dishonestly.

Adoboli broke down in tears in the dock as his lawyer, Charles Sherrard, asked the judge for leniency in sentencing, arguing his client was only trying to make money for the bank.

Already Punished

“Will he ever come back to the courtroom?” Sherrard said to the judge. “No. Has he been punished already? Yes and it will continue so.”

Another of Adoboli’s lawyers, Tim Harris, declined to immediately comment after the verdict.

While the 10-member jury was unanimous in finding Adoboli guilty of one count of fraud early today, jurors didn’t reach unanimous decisions on the other five counts. Keith then agreed to accept 9-1 decisions and jurors returned their verdicts on the other charges. He was found guilty of fraud dating to 2008.

The judge “could conceivably have given him 20 years,” said Mark Spragg, a lawyer at Keystone Law who isn’t involved in the case. “I don’t think there’s any prospect of an appeal court reducing the sentence. I would advise him not to appeal.”

UBS is still under investigation by the U.K. finance regulator and is likely to face a multi-million-pound fine for failing to have controls in place to stop the unauthorized trading.

Employee Departures

At least 11 employees left the bank in the wake of the trading loss, either through firings or resignations. That includes former Chief Executive Officer Oswald Gruebel and the co-heads of global equities, Yassine Bouhara and Francois Gouws. Adoboli’s co-workers on the ETF desk -- John Hughes, Simon Taylor and Christophe Bertrand -- have all also left the bank, as have his former managers, Ron Greenidge and John DiBacco.

UBS said in an e-mailed statement it was “glad that the criminal proceedings have reached a conclusion” and thanked “the police and the U.K. authorities for their professional handling of this case.”

The loss exposed faults in UBS’s risk controls three years after the Zurich-based bank had to be rescued by the state because of record losses tied to U.S. subprime-mortgage securities. Sergio Ermotti, who replaced Gruebel as CEO after the loss, deepened and broadened an overhaul at the investment bank. Under a reorganization announced last month, UBS will cut 10,000 jobs, or about 15 percent of its workforce, over three years and shrink its investment bank.

Unauthorized Trades

On Sept. 14, 2011, following inquiries about his trading by a UBS accountant, Adoboli left his office, went home and sent a “bombshell e-mail” describing unauthorized trades he’d made on German and U.S. futures.

“I am deeply sorry to have left this mess for everyone and to have put my bank and my colleagues at risk,” Adoboli wrote in the message to the accountant, copying two of his managers.

He was called back to the UBS office near London’s Liverpool Street train station that afternoon to answer questions and held there until his arrest early the next day.

Adoboli, who worked for UBS since leaving college, was accused of hiding the risk of his trades by booking fake hedges and storing profits in a secret account to cover the costs of running the bank’s exchange-traded-funds desk. Jurors cleared him of the charges related to the so-called umbrella account.

During the trial, prosecutor Sasha Wass called Adoboli arrogant, reckless and an “accomplished liar” who “played God” with the bank’s money for the sake of his status, ego and bonus. Lawyers for Adoboli countered that he didn’t benefit personally from the trades and his only goal was to make money for the bank and trading desk that he said replaced his family.

“In the end, the reason I’m most sad is because these losses weren’t the result of dishonest or fraudulent behavior,” Adoboli said. “These losses were the result of a group of traders who were asked to do too much, with too little resources, in a market that was too volatile.”

To contact the reporters on this story: Lindsay Fortado in London at lfortado@bloomberg.net; Jeremy Hodges in London at jhodges17@bloomberg.net

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

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