Bloomberg News

Adoboli Talked Slush Fund at UBS in Chats, Records Show

October 08, 2012

Former UBS Trader Kweku Adoboli

Kweku Adoboli is on trial, charged with fraud and false accounting, for allegedly causing a $2.3 billion trading loss at Zurich-based UBS. Photographer: Chris Ratcliffe/Bloomberg

A colleague of Kweku Adoboli at UBS AG (UBSN) discussed a “slush account” with him in online chats after the former trader told him he was holding profits off the bank’s trading books.

Darren Bailey, a trader in the cash-equities group who has worked at the bank for 13 years, testified yesterday at a London criminal court that he didn’t remember the exchanges and was “genuinely shocked” by message transcripts that showed they discussed the so-called umbrella account. Bailey said last week he couldn’t recall discussing a slush fund with Adoboli.

Adoboli is on trial, charged with fraud and false accounting, for allegedly causing a $2.3 billion trading loss at Zurich-based UBS. Prosecutors say he created an internal account while working on the bank’s exchange-traded funds desk in London where he parked trading profits to cover future losses. Adoboli, 32, has pleaded not guilty and his lawyers have sought to show the jury that others knew about the account.

Paul Garlick, one of Adoboli’s attorneys, yesterday read out chats between the traders where Adoboli told Bailey he was holding back some proprietary trading profits “for a rainy day.” In another chat from March of last year, Bailey asked Adoboli if he’d used the “slush account.”

“You’ve been caught out, haven’t you?” Garlick asked Bailey. “If you’re doing something which is illegal, which is dishonest within the bank, then you’d want to keep it secret.”

Trading Ban

Bailey, who still works for UBS, again said he didn’t recall the chats. He testified last week that he was once banned from trading futures for three months after he asked Adoboli to “warehouse” a trade for him, meaning that he’d book a trade for Bailey and keep it on his book overnight.

Another former colleague of Adoboli, John Ossell, testified on Oct. 5 that a reference in a chat to “Adoboli Fund Ltd.” wasn’t about the umbrella account. Ossell, a sales trader on the equity-traded derivatives desk, said he never knew about the umbrella and the reference was “work banter.”

“I suggest to you that you certainly knew about the umbrella fund and that you weren’t at all surprised,” Garlick said to him during the Oct. 5 hearing.

Adoboli was arrested in September 2011 after admitting that he had risked $5 billion on Standard & Poor’s 500 futures and a further $3.75 billion in the German futures market.

In messages to Bailey and Ossell in June 2011, Adoboli expressed concern about the direction of the market. Garlick said Adoboli was under pressure by others at UBS to change his position from bearish to bullish.

Niggling Feeling

In a message to Ossell, Adoboli said he “can’t escape the niggling feeling there is a shock on the horizon.”

Ossell advised him in one message to placate his bosses by changing his position.

“Yeah, but then we all lose,” Adoboli said. “I would rather take their wrath and make money they can share than follow the lemmings.”

Henry Chu, a former trade support analyst at UBS, was read a chat transcript by Garlick in which he told Adoboli to cancel and rebook a trade to change the settlement date. Garlick said Chu must have known it was a fake trade.

“If it were a genuine transaction, you couldn’t rebook and just move the settlement date, and you knew that,” Garlick said.

Chu denied the accusation and said he just wanted to remove discrepancies in the trading system.

“I thought it was just a messy desk,” Chu testified via video-link from Hong Kong. “We’re working 12, 13 hours a day, all we want is that our work is done, our e-mails replied to and the breaks resolved.”

To contact the reporters 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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