Bloomberg News

UBS Asked Cops to Arrest Adoboli Before Calling FSA, Prosecutors

September 15, 2011

Sept. 16 (Bloomberg) -- UBS AG, Switzerland’s biggest bank, asked British police at 1 a.m. to arrest Kweku Adoboli before notifying the U.K. financial regulator or prosecutors, according to two people familiar with the matter.

The Financial Services Authority was notified shortly after police. Prosecutors at the Serious Fraud Office, which also handles white-collar crime, weren’t contacted at all, according to the people, who declined to be identified because the investigations are private.

The investigation highlights the fragmented financial crime enforcement agencies in the U.K. with jurisdictions that often overlap. That UBS went straight to police after learning about a $2 billion loss on trades indicates that the 31-year-old Adoboli may have been a flight risk, or that the bank wanted to distance itself from any crime, said Lindsay Thomas, a financial regulation adviser at Sustainable Risks.

UBS wants “to suggest that it was a terrible criminal act, and that they were a victim,” Thomas said in a phone interview in London.

The City of London police arrested Adoboli at a business address in London at 3:30 a.m. on suspicion of fraud and abuse of position in connection with unauthorized trading at UBS’s investment bank. Police declined to identify the address. Adoboli remains in custody during the probe, Commander Ian Dyson said yesterday.

UBS is still investigating the matter, the Zurich-based bank said in a statement. No client positions were affected, and it may be unprofitable in the third quarter because of the loss, UBS said, declining to comment further.

Delta One

Adoboli worked on the bank’s Delta One desk, a unit that handles trades for clients, typically helping them to speculate on or hedge the performance of a basket of securities. He graduated from the University of Nottingham, in central England, in 2003 with a degree in e-commerce and digital business, according to the school.

The short notice caught regulators flat-footed and neither the FSA in London nor Switzerland’s Financial Market Supervisor would say whether they had opened a formal investigation.

One of the people familiar with the situation said that while the FSA has been in contact with UBS and FINMA, it hasn’t opened a formal probe yet because officials are still gathering information about whether a crime or regulatory violation occurred.

Tobias Lux, a spokesman for FINMA, declined to comment on whether the regulator, which monitors risk management at Swiss banks, has started a formal investigation.

‘Close Contact’

“We are in close contact with UBS, which informed us immediately about the situation,” Lux said.

The investigations bring attention to the U.K.’s multiple agencies that combat financial crime.

The City of London police is one of two police squads in the capital and focuses on economic crime with a specialized fraud unit. Cases handled by the department are generally brought to trial by the Crown Prosecution Service. The Metropolitan Police Service handles more general crime throughout greater London.

The Serious Fraud Office, which both prosecutes and investigates white collar crime and corruption, said in statement that it would start making initial inquiries into the case.

Seeking Discussions

“The SFO will be seeking discussions with relevant parties, City of London Police, FSA and UBS if necessary, to determine the best way forward should fraud be at the base of these actions,” the prosecutors said.

A criminal case against Adoboli wouldn’t be tackled by the FSA, which generally only prosecutes insider-trading cases, said Ruth Gevers, a director at the Promontory Financial Group in London.

“The FSA’s angle on this would be, are there systems and controls failings by the firm that put them at risk?” Gevers said. “They’ll want to know if there’s unauthorized trading and how it happened.”

UBS will be “desperate to comply” with an inevitable FSA regulatory probe, said Steven Francis, a lawyer at Reynolds Porter Chamberlain in London. The FSA has emphasized the importance of stringent compliance procedures to stop unauthorized trading since the 2008 arrest of Jerome Kerviel in Paris.

“The interesting thing is what happens to UBS because unless this guy was incredibly devious there has to have been a failure of controls at the bank,” Francis said. “He would’ve clearly exceeded his limits.”

--Editors: Anthony Aarons, Christopher Scinta

To contact the reporter on this story: Lindsay Fortado in London at lfortado@bloomberg.net

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


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