UBS AG won dismissal of a suit claiming the bank lied to investors about its risk-management practices before its disclosure of a $2.3 billion trading loss by “rogue trader” Kweku Adoboli.
Adoboli, who worked in UBS’s London office, was convicted of fraud and sentenced to seven years in prison last year. The unauthorized trading loss was the biggest in British history.
“That a ‘rogue trader’ was able to cause such a significant loss to UBS is more akin to a claim of mismanagement than of fraud,” U.S. District Judge Katherine Forrest in Manhattan said yesterday in a ruling dismissing the suit.
A group of investors led by two union pension funds sued UBS and several former top executives in June 2012, claiming they misled investors about “UBS’s purportedly robust risk management systems and internal controls” from Nov. 17, 2009, to Sept. 15, 2011, when the bank disclosed that a trader in its investment banking division made unauthorized proprietary trades that resulted in more than $2.3 billion in losses.
The incident forced UBS to admit that “the company’s internal risk and disclosure controls were inadequate,” the pension funds said in their complaint.
Forrest ruled that the investors failed to allege facts suggesting that the bank and its former executives knowingly misled investors, as is required in a suit alleging securities fraud. She said securities laws don’t “require that banks be prescient or omniscient.”
“They do require that the maker of statements alleged to be false knew of the falsity at the time,” Forrest wrote.
The case is CDTS No. 1 & ATU Local 1321 Pension Plan v. UBS AG, 12-cv-04924, U.S. District Court, Southern District of New York (Manhattan).