Bloomberg News

UBS Trader Adoboli Charged With Fraud, False Accounting

September 17, 2011

(Updates with comments from UBS honorary chairman in 16th paragraph.)

Sept. 17 (Bloomberg) -- Kweku Adoboli, the trader arrested Sept. 15 after UBS AG said it discovered unauthorized trades that caused a $2 billion loss, was charged with fraud and two counts of false accounting dating back to 2008.

The 31-year-old was taken into custody at a magistrates court in London yesterday until Sept. 22, when he can make an application for bail. Adoboli’s false accounting offenses started in October 2008, according to the court charge sheet. He is also charged with fraud dating back to January 2009.

Adoboli “dishonestly abused” his position as a senior trader, which required him “to safeguard, or not to act against, the financial interests of UBS,” according to court documents.

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 takes risks with the bank’s own money in arranging trades. UBS has said that no client positions were affected.

He hired criminal law firm Kingsley Napley LLP in London to represent him. Lawyers from the same firm advised Nick Leeson, the former derivatives trader who caused the collapse of Barings Plc with $1.4 billion in losses in 1995.

Adoboli wore a sky-blue sweater over a white shirt for his appearance in court yesterday and didn’t speak apart from confirming his name and date of birth. He didn’t enter a plea. Kingsley Napley said in an e-mailed statement yesterday that it wouldn’t comment on behalf of its client.

FSA Investigation

The U.K. Financial Services Authority and the Swiss Financial Market Supervisory Authority said they would investigate the UBS trading losses.

The investigation, to be carried out by a third party, will focus on “the control failures which permitted the activity to remain undetected” and “will include an assessment of the overall strength of UBS’s controls to prevent unauthorized or fraudulent trading activity in its investment bank,” the FSA said in an e-mailed statement yesterday.

Adoboli’s arrest comes as global regulators are pressing banks to curb proprietary trading and is likely to revive calls for firms to increase controls on risk and separate their investment banking from their retail businesses.

The police investigation is continuing and the City of London Police said they are working with the FSA and the Serious Fraud Office, which prosecutes white-collar crime.

Crown Prosecution

“Lawyers from the Crown Prosecution Service Central Fraud Group have today authorized City of London police to charge” Adoboli, Sue Patten, the head of the CPS group, said in a separate statement.

The bank asked British police at 1 a.m. on Sept. l5 to arrest Adoboli. Adoboli was arrested at 3:30 a.m. that day on suspicion of fraud by abuse of position. He was held at a police station in central London while the claims were investigated after the Zurich-based bank asked for the arrest of its employee.

Richard Morton, a spokesman for UBS, declined to comment on the charges.

UBS Chief Executive Officer Oswald Gruebel called the loss “unauthorized” and “distressing” in an e-mail to employees, without giving details.

UBS is said to have hired the London-based law firm Herbert Smith to advise on the investigation, according to two people familiar with the matter.

The bank’s honorary chairman Nikolaus Senn said in an interview today with Swiss TV channel SF that Oswald Gruebel wouldn’t be able to remain as CEO because of the losses. UBS lacked adequate controls, he said.

Trade Support

Before working on the trading desk, Adoboli worked as a trade support analyst at UBS, according to a profile posted on LinkedIn.

The $2 billion loss is the largest since former Societe Generale SA derivatives trader Jerome Kerviel caused a 4.9 billion-euro ($6.7 billion) loss in 2008. Kerviel worked on a similar trading desk to Adoboli.

Britain’s FSA has said it had discussed the Kerviel case with as many as 50 banks in London and that “many had already put in place reviews to ensure they identify any gaps in trading controls and close them as soon as possible,” according to a policy document from March 2008.

Adoboli graduated from the University of Nottingham in July 2003, earning his degree with honors in e-commerce and digital business, the school said in a statement. He also attended the Ackworth School in West Yorkshire as an overseas boarder until 1998, Kathryn Bell, the head of the school, said in an e-mail.

Adoboli is now shown as inactive on the Financial Services Authority’s register. His father, John Adoboli, a former United Nations official, told the U.K.’s Press Association in an interview from Tema, Ghana, that the family was “heartbroken because fraud isn’t our way of life.”

--With assistance from Gavin Finch in London and Anne-Sylvaine Chassany in Paris. Editors: Will Kennedy, Robert Valpuesta

To contact the reporters on this story: Lindsay Fortado in London at lfortado@bloomberg.net; Ben Moshinsky in Brussels at bmoshinsky@bloomberg.net

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


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