The former head of a trading desk at UBS AG (UBSN)’s wealth-management unit in London must pay 1.25 million pounds ($2 million) for unauthorized trading after he lost his challenge to the penalty levied by the U.K. finance regulator.
Sachin Karpe is also accused by the Financial Services Authority of moving money between client accounts to hide losses from unauthorized foreign-exchange trades and helping Indian billionaire Anil Ambani’s company invest more than $250 million in an offshore trust in violation of Indian law. The FSA fine against him was upheld by a London tribunal today.
Karpe, who was fired from his post overseeing accounts for Indian clients on the bank’s Asia-2 desk, helped Ambani’s Reliance ADAG group of companies use an investment fund incorporated in Mauritius to evade Indian securities laws and then concealed the investment from UBS’s compliance department, according to the ruling. Karpe only challenged the fine by the regulator, not a lifetime ban from working in the U.K. financial-services industry.
“We have taken into account the scale of the losses that resulted from Mr. Karpe’s carrying out of unauthorized transactions,” the three-judge panel ruled. “We infer that the whole motivation was to benefit him indirectly and in the long term by obtaining new clients through his apparent prestige, increasing funds under management and thereby advancing his career and increasing his bonuses.”
Lawyers for Karpe, who according to the ruling now works as a consultant for the Indian investment firm Altamount, submitted evidence that the fine would cause financial hardship.
While he is “very disappointed” the tribunal didn’t consider all the evidence he put forward, Karpe said in a statement he won’t appeal the decision. He didn’t gain personally and his actions were “largely to assist clients and as a result of the nature of business at UBS, as well as the then-prevalent compliance culture” at the bank.
Ambani’s Reliance Group said in an e-mailed statement that the decision relates to regulatory action “against former employees of UBS, and not against any Reliance entities or Mr. Ambani.”
Karpe and his desk made as many as 50 unauthorized trades a day over a two-year period from 39 client accounts, according to the FSA. Over a one-year period from 2006 to 2007, he placed 2,811 unauthorized foreign-exchange trades from one client’s account with values of $11.3 billion, 4.3 billion pounds, 1.9 billion euros ($2.4 billion), 105 billion Japanese yen ($1.3 billion), and 4.9 billion Swiss francs ($5.2 billion), according to the ruling.
The trades were discovered after a UBS whistle-blower reported a $5,000 transfer from a customer account to Karpe’s personal bank account in 2007, the FSA said. The bank began a review that led to Karpe’s firing in early 2008.
UBS in 2009 paid an 8 million pound-fine and agreed to reimburse customers $42.4 million over the losses he caused. Laila Karan, a former client adviser on the desk who was fired for gross misconduct and is also a defendant in the case, must pay a 75,000-pound fine for not notifying the bank about Karpe’s actions.
“The conduct of Ms. Karan and Mr. Karpe was in clear breach of UBS policies and procedures,” the Zurich-based bank said in a statement. “We are satisfied with the outcome.”
Karan said in a separate statement that while there was no willful wrongdoing or gain on her part, she accepts that she didn’t scrutinize all documents before signing them.
“I believe my one mistake was to place too much trust in my boss, a very senior banker at UBS who was revered by all at the bank up until the time of the internal investigation, which incidentally found that I personally had not breached standards of integrity.”
At the hearing, Karpe’s lawyer argued he didn’t circumvent any rules because the UBS unit had no controls in place to prevent unauthorized trading in client accounts.
“The compliance and compliance monitoring failings on the part of UBS may have created an environment within which staff of UBS could get away with wrongdoing,” the tribunal ruled. “But that does not excuse the wrongdoing.”
John Pottage, the former chief executive of the wealth- management unit, last month won his case against the FSA, which alleged he didn’t do enough to prevent the unauthorized trades. The regulator sought to fine him 100,000 pounds, arguing he didn’t ensure the division had sufficient controls. He is now a senior executive at the bank’s headquarters in Zurich.
The case focused on risk-management failures at the bank years before Kweku Adoboli, a former trader at UBS’s investment bank, was accused of causing $2.3 billion in losses through unauthorized trading. Adoboli, who was charged last year with fraud and false accounting tied to the loss, has pleaded not guilty. He is scheduled to be tried in September.
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