Bloomberg News

UBS Co-Worker Says He Used Adoboli’s Umbrella Account

October 01, 2012

John Hughes, a former UBS AG (UBSN) trader, testified he made the same type of unauthorized trades as his co-worker Kweku Adoboli, who is being prosecuted for fraud.

Hughes said during his fourth day of testimony at Adoboli’s fraud and false accounting trial in London yesterday that he made trades that benefited the fund Adoboli had dubbed his “umbrella” -- the first time another worker admitted using that account.

Charles Sherrard, Adoboli’s lawyer, presented evidence of at least five transactions on the umbrella account made by Hughes while Adoboli was on vacation in Greece in June 2011, and that accounting firm KPMG LLP had evidence of other such trades. Adoboli called it the umbrella because it could be tapped on “rainy days” to cover trading losses, prosecutors have said.

Sherrard asked Hughes why, if he had made the trades, he told UBS management and their lawyers after Adoboli’s arrest last year “that you hadn’t played a part in anything” even though the last trade Hughes personally made was executed “just six weeks earlier.”

Hughes confirmed he’d made the trades, which were real transactions on the bank’s books tied to fake hedges that hid risk from the desk’s regular trading book. Profit from such trades went into the umbrella fund for later use by the exchange-traded fund desk, Sherrard said.

Futures Market

Adoboli was charged in relation to unauthorized trades on which UBS lost $2.3 billion. The former trader admitted hours before his arrest in September of last year that he had risked $5 billion on Standard & Poor’s 500 futures and a further $3.75 billion in the German futures market, a former manager testified. Adoboli has pleaded not guilty.

Sherrard has said previously that Hughes had made his own off-book trades, knew of the umbrella account and “at times controlled it.”

Hughes reiterated yesterday he didn’t control the umbrella fund and that he didn’t know how to directly access it on Adoboli’s computer. He also said he didn’t know about the fund until about January 2011, though Adoboli created it in 2008. Others who were fired, including Adoboli’s former manager Ron Greenidge, weren’t aware of the umbrella, Hughes said.

Sherrard said Hughes abandoned Adoboli as the scheme unraveled and let him take the fall on his own, instead of stating he’d been part of it. Hughes also agreed for the first time he had a supervisory role over Adoboli and that he repeatedly lied when asked by the ETF desk’s manager to report on their daily profits and losses.

Hughes was shown transcripts of iPhone messages between Adoboli and his girlfriend. Sherrard said they showed Hughes went to the woman’s apartment after the scheme fell apart, to determine if “Adoboli had been saying anything to anyone else about you, that’s what you were worried about -- just you.”

Hughes said he didn’t remember whether he went to the woman’s apartment.

To contact the reporter on this story: Erik Larson in London at elarson4@bloomberg.net

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


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