UBS ‘Rogue Trader’ Convicted of Fraud that Caused $2.3B Loss

Kweku Adoboli, an ex-UBS (UBS) trader, has been convicted of fraud over bad deals he made at the Swiss Bank that resulted in $2.2 billion in losses. He has been sentenced to 7 years behind bars.

Adoboli, who had pled not guilty to the criminal charges, is accused of booking bogus hedges and storing profits in a secret account to hide the risks related to his trades and dealings involving exchange traded funds, commodities, bonds, and complex financial products that track stocks. Not only did he go beyond his trading limits but also he did not cover his losses.

Meantime, Adoboli had argued in his defense that the trading losses happened not because of fraudulent or dishonest conduct on his part but because he and other traders were asked to accomplish too much without sufficient resources and in a very volatile market. Adoboli said his manager pressured traders to take too many risks and that breaking the rules was a common occurrence at UBS’s London office. He also testified that he had been acting to help the investment bank stay in operation after the $52 billion in losses it had suffered during the global economic crisis. Adoboli was arrested in 2011 after he sent out an email admitting to making the unauthorized trades on US and German futures.

Although the 10-member jury was unanimous in its guilty verdict of one count of fraud against him, they couldn’t come to unanimous rulings on the other five counts. Eventually given the option to issue a 9-1 decision, Adoboli was found guilty of a second count of fraud going as far back as 2008. (According to one UBS investment bank executive who testified during the criminal trial last month, losses from the unauthorized trades Adoboli had made could have hit $12 billion).

In the wake of the still massive massive trading loss, at least 11 employees were either let go or resigned from UBS, including ex-CEO Oswald Gruebel, global equities co-heads Francois Gouws and Yassine Bouhara, Adoboli coworkers Simon Taylor, John Hughes, and Christopher Bertrand, and his ex-managers John DiBacco and Ron Greenidge.

The way this trading loss was able to come about shows that there are problems with UBS’s risk controls. However, it appears as if UBS is not taking on too much of the blame brunt—again.

“Once again, a soldier is sent to the penitentiary while the generals who looked the other way don’t face charges,” said Shepherd Smith Edwards & Kantas, LTD LLP Founder and Securities Lawyer William Shepherd. “The big boys of the world of finance are exempt from punishment as they call their employees ‘rogues.’ Justice is very select in the financial community.”

Prosecutors are calling this the largest fraud in UK banking history. Adoboli’s conviction comes just months after JPMorgan Chase (JPM) suffered at least $5.8 billion in losses from bad trades made at its office in London.

UBS rogue trader Kweku Adoboli found guilty of 2 counts of fraud for $2.2 billion loss, The Washington Post/AP, November 20, 2012

Kweku Adoboli Convicted, UBS ‘Rogue Trader,’ Convicted of Fraud Over $2.3 Billion Loss, Huffington Post, November 20, 2012

More Blog Posts:

UBS Trader Charged with Fraud Related to $2B Trading Loss, Stockbroker Fraud Blog, September 23, 2011

JPMorgan Chase $2B Trading Loss Leads to Probes by the SEC, Federal Reserve, and FBI, Institutional Investor Securities Blog, May 15, 2012

Appeal of Stockbroker Found Liable in Unauthorized Trades of Cyberonics Stock is Rejected by 7th Circuit, Stockbroker Fraud Blog, August 18, 2012