Feb. 3 (Bloomberg) -- Kweku Adoboli, a former UBS AG trader, was denied bail at a London criminal court on the same day U.K. regulators formalized their enforcement action of the unauthorized trading for which the bank claims he’s responsible.
The bail application today was Adoboli’s first request to be released from prison since he was arrested by London police Sept. 15 for allegedly causing a $2.3 billion loss, the largest in British history. Adoboli, who holds a Ghanaian passport, was denied bail in part because of his links to the African country.
The 31-year-old pleaded not guilty to fraud and false accounting this week and is being held at Wandsworth prison in southwest London awaiting a trial in early September. The U.K. and Swiss finance regulators also said in a statement today that they have begun formal enforcement actions against UBS over the risk-management processes at its investment bank in London.
“Kweku pleading not guilty was a small disaster for UBS,” Steven Francis, a regulatory lawyer at Reynolds Porter Chamberlain LLP in London said in a telephone interview today. “It may well be that this is a slow-track investigation because they need to see the outcome of the criminal case.”
The U.K. Financial Services Authority and the Swiss Financial Market Supervisory Authority, known as Finma, are investigating the risk controls at UBS’s investment bank that didn’t prevent the unauthorized trades, the agencies said in statements today. The regulators hired the accounting firm KPMG in September to handle an independent investigation into events surrounding the losses.
The move to a formal enforcement proceeding typically indicates the regulators have found sufficient evidence of financial rule violations. UBS said the regulators told them of their decision and they are cooperating.
“Immediately after the unauthorized trading incident, the Group Executive Board thoroughly investigated the incident and implemented measures to better protect our firm from unauthorized activities,” UBS spokeswoman Jenna Ward said in an e-mailed statement.
Adoboli’s lawyer, Tim Harris of Bark & Co., declined to comment on the bail refusal.
The case has led to the departures of Chief Executive Officer Oswald Gruebel and the co-heads of the Swiss bank’s global equities business. The loss allegedly came from trading in Standard & Poor’s 500, DAX and EuroStoxx index futures, according to the Zurich-based bank.
While the bank’s internal systems had detected “unauthorized or unexplained” activity, that wasn’t “sufficiently” probed and controls weren’t enforced, Sergio Ermotti, UBS’s current CEO, told employees in a memo on Oct. 5, when the bank announced resignations of co-heads of global equities business Francois Gouws and Yassine Bouhara.
UBS also suspended or took disciplinary actions against eight other employees at the investment bank.
The bank said in a filing with the Securities and Exchange Commission in the U.S. that it found deficiencies in internal controls designed to prevent or detect the use of unauthorized and fictitious transactions. Controls to ensure internal transactions are valid and accurately recorded also weren’t effective, the bank said in the filing.
Adoboli worked for the investment bank’s Delta One desk, which handles trades for clients -- or risks the bank’s own money -- typically speculating on, or hedging the performance of, a basket of securities.
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