Adoboli Says He Booked Fake Trades to Conceal Gains, Loss

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Former UBS Trader Kweku Adoboli
Former UBS Trader Kweku Adoboli told jurors “At an early age I learned to take responsibility.” Photographer: Simon Dawson/Bloomberg

Kweku Adoboli, the former UBS AG trader accused of causing the largest unauthorized trading loss in British history, said he booked fake trades to hide profits and losses on real transactions and others on his desk knew what he was doing and helped him.

Adoboli, 32, said he first booked a so-called holding trade in late 2008 in order to take another off his desk’s book to hide the risk, he testified yesterday as he took the stand for the first time in his fraud trial.

“I had seen traders in my peer group and traders more senior than me either hold positions off-book by not booking them as soon as they did the trade, or by booking a covering trade to take them beyond the first day or two,” Adoboli said during testimony that lasted about four hours. “I don’t believe that what we were doing was illegitimate.”

Adoboli is accused of booking fake hedges to hide the risk of trades, causing the Swiss bank a $2.3 billion loss. He was charged in September of last year with two counts each of fraud and false accounting and yesterday prosecutors added two more false accounting charges tied to his so-called umbrella account. He has pleaded not guilty.

Adoboli tearfully told jurors that he neglected family and friends, working as many as 16 hours a day and twice sleeping at the office for the benefit of UBS’s exchange-traded-funds desk.

Joining the bank fresh from university, Adoboli said his colleagues at UBS replaced his own family. He said he struggled to make the $40 million profit necessary to cover the desk’s yearly costs and admitted to keeping a $6 million gain in 2009 off the bank’s books to do so. The umbrella account, in which he kept the money, was an accounting mechanism his desk employed, he said, and other desks had similar strategies.

Unwinding Positions

Adoboli said he learned how to keep trades off the books from colleagues and all of his actions were intended to benefit the bank, not himself.

“The procedure says unwind the position, don’t hold it overnight -- the reality is I need to minimize that loss,” he said of one trade. “I had to take it off-book, I had to conceal the effect of the risk” and take it off the day’s profit and loss.

Adoboli joined the ETF desk in 2006 and by the summer of 2007 it was only he and John Hughes, Adoboli said. At the time, he was 27 and Hughes was 24.

“There was a total of 30 months in trading between the two of us, and we were in charge of a $50 billion book,” he said.

Can’t Leave

In 2007, with the financial crisis and the departure of another trader from the ETF desk, Adoboli said the job began consuming his life. He couldn’t leave work when his grandmother died because it was only he and Hughes on the desk, he said.

As a result, he said he would wake up at 4 a.m. to start checking messages and Bloomberg news before cycling to work for 6 a.m. He sometimes didn’t leave until 10 p.m. or even early morning, he said, and after he left for the day would monitor CNBC for news on the U.S. markets.

“There was no room for anything else, because we just didn’t have the resources,” he said. “To make it worse, we were just losing so much money, it was mental.”

Adoboli said he told the other traders on the ETF desk about the umbrella. He told Simon Taylor first in 2010, then Hughes later that year. Christophe Bertrand, the junior trader on the desk, was told in February 2011, Adoboli said. His co-workers helped him maintain the account and others on the trading floor also knew about it, he said.

Profit, Loss

“Each member of the desk knew that other desks had off-book profit and loss, they knew that desks like ours had large inventory positions that cost money because they required funding and hedging,” Adoboli said. “At no stage did anyone I spoke to intimate to me that they thought it was dishonest.”

The former trader, who began crying soon after he started testifying, said it was unfair for prosecutors to claim his back-office experience led him to book fictitious trades.

“To find yourself in Wandsworth prison for nine months when all you did was work so hard,” Adoboli said before breaking down in tears.

Ruwan Weerasekera, chief operating officer of securities at UBS’s investment bank, testified Oct. 9 that Adoboli booked tens of thousands of real and fake trades during the summer of 2011 that exposed UBS to losses that could have reached $12 billion.

Adoboli was sent to boarding school in England when he was 12. After that, he attended Nottingham University, got a summer internship at UBS in 2002 and joined the bank after graduating in 2003. The only other job he ever had was as a waiter.

He started at the bank working for the trade-settlements team and was offered a role in prime brokerage as a junior trader in 2005. It was “incredibly hard work” and rewarding, he said, and the bank continued to offer him new opportunities.

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