Ex-UBS Trader Falsified ETF Transactions, Prosecutor Says

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Ex-UBS Trader Adoboli Faked ETF Transactions, Prosecutor Say
An artist courtroom sketch shows Kweku Adoboli, the UBS trader, top row left, as he sits in the dock during his appearance at the City of London magistrates court, in London, on Thursday, Oct. 20. Artist: Priscilla Coleman/Bloomberg

Kweku Adoboli, the trader accused of costing UBS AG $2.3 billion by making unauthorized trades, falsified records on exchange-traded-fund transactions, prosecutors said.

Prosecutors amended two of the four charges against Adoboli to indicate that records he allegedly falsified were on ETF trades. A London magistrates court today transferred the case against the 31-year-old to a criminal court where he will be expected to enter a plea on the accusations at a Nov. 22 hearing.

The charges, which also include two counts of fraud and date back to 2008, cover “a large number of transactions,” prosecutor David Williams said at the hearing today. “He exposed the bank to risk of large losses.”

Adoboli has been in custody since his arrest on Sept. 15, when UBS asked the City of London police to detain him after he reported the losses. He was charged two days later with fraud and false accounting. The trading loss prosecutors claim he was responsible for led to the departures of Chief Executive Officer Oswald Gruebel and the co-heads of the Swiss bank’s global equities business. Adoboli was fired by the bank on Sept. 17, Williams said.

ETFs are exchange-listed products that mirror indexes, commodities, bonds and currencies and allow investors to buy and sell them like stocks.

No Plea

Adoboli, who holds a Ghanaian passport, appeared before a panel of three judges today and his lawyer Patrick Gibbs said he wouldn’t indicate how his client planned to plead. He said through his lawyer at a hearing last month he was “sorry beyond words” for his “disastrous miscalculations.”

Several of Adoboli’s family members and at least 15 friends were in attendance at today’s hearing, where he wore a black suit, white shirt and purple tie. Adoboli faces as many as 10 years in prison if found guilty, according to U.K. sentencing guidelines. Time spent in custody beforehand would be deducted from any sentence.

Adoboli is being held at Wandsworth prison in southwest London. His lawyers didn’t ask the court to release him on bail.

UBS questioned one of Adoboli’s trades in August this year, and he “provided a good and plausible explanation,” Williams said. The bank then asked him on Sept. 13 about further trades he’d made that could expose the bank to large losses, and whether he’d told the credit-risk department. He said he hadn’t.


The following day, UBS asked him to confirm “the exact identities of the counterparties” on the trades and he didn’t respond, Williams said at the hearing today. Adoboli left the office at lunchtime and went to his apartment in east London, where he e-mailed the bank about the positions.

“The bank was anxious to have him explain,” and he returned at 3:45 p.m. and cooperated with UBS managers, the prosecutor said. The bank called the police late that night and Adoboli was taken to Bishopsgate precinct, the closest one to UBS’s London headquarters. He was cautioned about his rights and interviewed and “made no admissions,” Williams said.

Prosecutors would have opposed any request for bail by Adoboli because of his close relationship to UBS employees and the risk that he could interfere with witnesses, Williams said. Adoboli is in debt and also has close ties to Ghana, the prosecutor said.

In addition to the departure of Gruebel and the co-heads of global equities, Francois Gouws and Yassine Bouhara, the bank has suspended “a number of front office staff” pending further disciplinary action, Carsten Kengeter, head of the investment bank, said in a memo to staff.

Delta One

Adoboli worked for UBS’s investment bank on its Delta One desk, which handles trades for clients, typically helping them to speculate on, or hedge the performance of, a basket of securities. The group also trades using the bank’s own money. UBS has said that no client positions were affected.

UBS’s loss came from trading in Standard & Poor’s 500, DAX and EuroStoxx index futures, according to the Zurich-based bank. The trades’ risk was masked by fictitious positions, UBS said.

Adoboli “dishonestly abused” his position as a senior trader on the global synthetic-equity desk “to make a gain” for himself and “to expose UBS to a risk of loss,” prosecutors said in court papers.

The U.K.’s Financial Services Authority and the Swiss Financial Market Supervisory Authority are jointly investigating control failures at the bank that allowed the trades to go undetected. The joint regulatory probe will be conducted at the same time as investigations by police, prosecutors and an internal review by the Swiss bank.

‘Worldwide Repercussions’

The FSA and the Swiss regulator, known as Finma, said their investigation will focus on the details of the allegedly unauthorized trades, control failures that allowed them to happen, and an assessment of the bank’s methods to prevent fraudulent trading.

Gruebel resigned on Sept. 24, saying the trading incident has “worldwide repercussions.” He was replaced on an interim basis by Sergio Ermotti, who is trying to bolster investor confidence in a bank that Gruebel had said included “one of the best” risk-management units in the industry.

The bank said earlier this month that it expects a “modest” third-quarter profit as gains from wider credit spreads and the sale of bonds helped cushion the $2.3 billion loss. UBS had said last month it may be unprofitable after discovering the unauthorized trades. The bank is due to report third-quarter earnings on Oct. 25.

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