Bloomberg News

Ex-UBS Banker to Argue Unauthorized Trading Encouraged, FSA Says

December 13, 2011

Dec. 12 (Bloomberg) -- Sachin Karpe, a desk head at UBS AG’s wealth-management unit fired for unauthorized trading in 39 client accounts, will argue the practice was “encouraged” at the bank, a lawyer for the U.K. finance regulator said.

Karpe and Laila Karan, a former client adviser who Karpe oversaw on the Asia-2 desk, are challenging the Financial Services Authority’s attempt to fine them for causing losses of $42.4 million on 21 client accounts through unauthorized trading. A lawyer for the FSA said on the first day of a hearing today that part of Karpe’s defense is that he made foreign exchange trades with clients’ money to minimize customer losses.

“Karpe seems to be saying three things, that he had his clients’ implied consent, that the practice was widespread within UBS, and third, that the practice was encouraged,” Jonathan Crow, the FSA lawyer, told a tribunal in London. “Karpe’s case is simply illogical” and “UBS did not encourage unauthorized trading.”

The case is an instance of risk-management failures at the bank, several years before Kweku Adoboli, a former trader in UBS’s investment bank, was charged with causing $2.3 billion in losses through unauthorized trading. Adoboli, who was charged with fraud and false accounting tied to the loss, may enter a plea at a London criminal court next week.

$130,626 Loss

The FSA said today that Karpe once caused a $130,626 loss in a client account, then took money from another client account to cover the loss. He then authorized the deletion of mailed account statements and began “a colossal amount of foreign- exchange trading” to try to account for the losses, Crow said.

Lawyers for Karpe and Karan will present arguments later in the trial. Karpe’s lawyer, Ian Hargreaves, didn’t respond to an e-mail seeking comment.

Another defendant, Jaspreet Ahuja, has decided to settle with the FSA, Crow said.

“UBS has already acknowledged that there were weaknesses in certain aspects of Wealth Management U.K.’s control environment,” UBS spokesman Oliver Gadney said in a statement. “UBS supports the action being taken by the FSA” against Karpe and Karan.

The regulator is also attempting to fine John Pottage, the former chief executive officer of UBS wealth management in the U.K., 100,000 pounds ($156,000) for failing to prevent unauthorized trades in the division. Pottage, who is now a senior executive at the bank’s headquarters in Zurich, went to trial last month to challenge the regulator in a separate case.

UBS settled with the FSA in 2009 over the unauthorized trading and agreed to pay an 8 million pound fine, the third- largest penalty levied by the regulator at the time.

--Editors: Anthony Aarons, Peter Chapman

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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