Saturday, September 15, 2012

Adoboli Loss Could’ve Topped $12 Billion, Prosecutor Says

Adoboli Loss Could've Topped $12 Billion, Prosecutor Says

Kweku Adoboli's web of faked deals fell apart one year ago when the UBS AG (UBSN) trader could no longer hide billions of dollars in losses as the euro zone crisis moved markets against his bets, a prosecutor said.

Adoboli left the bank's London office at 1:30 p.m. on Sept. 14 of last year, claiming he had a doctor's appointment. An hour later he sent a "bombshell e-mail" to a UBS accountant describing unauthorized trades in the German and U.S. futures markets, prosecutor Sasha Wass told the 12-person jury at the beginning of a London criminal trial yesterday. His losses could have reached as much as $12 billion at one point, she said.

"The scale of Mr. Adoboli's gambling was so large and so unchecked he could have quite easily approached and even exceeded the limits of the bank's resources," Wass said. "One only has to imagine doubling the loss that he made of $2.3 billion a few more times to see that he was putting the very existence of the bank at risk."

Adoboli, 32, exceeded his trading limits and invented hedges to conceal losses from his managers, Wass said, with the aim of increasing "his bonus, his status within the bank, his job prospects and his ego." His pay rose from 40,500 pounds ($65,600) in 2005 to 360,000 pounds in 2010, including bonus, she said.

The former trader is charged with falsifying records on exchange-traded fund transactions and other documents needed for accounting purposes as early as October 2008. Prosecutors also charged him with fraud for abusing his senior trader position.

Adoboli worked for the Zurich-based investment bank's Delta One desk, which handles trades for clients -- or risks the bank's own money -- typically by speculating on a basket of securities. The loss, which came from trading in Standard & Poor's 500, DAX and EuroStoxx index futures, didn't affect any client positions, according to UBS.

'Deeply Sorry'

Adoboli described how he accrued losses during "the aggressive sell-off in the days of July and early August" as a result of the "escalation of the euro-zone crisis," in his e- mail to the accountant, William Steward. He was called back to the bank to meet with managers and explain.

"I am deeply sorry to have left this mess for everyone and to have put my bank and my colleagues at risk," Adoboli wrote.

Adoboli's team had a daily trading limit of $100 million, the prosecutor said, however, the extent of the losses discovered by 3:30 p.m. "was astronomical." Adoboli admitted he'd risked $5 billion on Standard and Poor's 500 futures and a further $3.75 billion in the German futures market, Wass said.

Adoboli, dressed yesterday in a charcoal gray suit and purple tie, "lost all professional caution" and "was throwing money wildly into the market hoping to dig himself out of the mess he had created," Wass said.

'Colossal Loss'

"This colossal loss arose purely as a result of Mr. Adoboli's fraudulent deal-making, which amounted, as we will see, to nothing more than gambling," Wass said.

Adoboli created various internal accounts at UBS, which he called his "umbrella" to protect him on a rainy day, Wass said. He used the accounts to hide profits and losses of his unauthorized trading, she said. The umbrella had profit of $30 million by November 2009, she said.

He first began false accounting in October 2008 to hide a trading loss of $400,000, Wass said.

In the U.K., fraud charges carry a maximum sentence of 10 years in jail, and seven years for false accounting. Adoboli, facing two counts of each, has denied the allegations.

London Scandal

The trial comes on the heels of a series of scandals for London's finance industry. Barclays Plc (BARC), the country's second- largest lender by assets, settled with regulators in June for a record 290 million pounds for rigging interest rates. Standard Chartered Plc (STAN) paid $340 million last month to settle allegations by New York's banking regulator that it laundered $250 billion for Iran and HSBC Holdings Plc is also being probed over handling cash for sanctioned nations.

Held in Wandsworth prison in southwest London after his arrest on Sept. 15, 2011, Adoboli was granted bail and released June 13. He is staying with a friend in the British capital, his lawyer has said. As part of his bail conditions, he has a curfew and has surrendered his Ghanaian passport.

Adoboli was born in Ghana to a former United Nations official and attended a Quaker boarding school in West Yorkshire, England, until 1998. He graduated with honors from the University of Nottingham in July 2003 with a degree in e- commerce and digital business. Photography, cycling and wine are among his interests, according to his LinkedIn profile.

To contact the reporter on this story: Lindsay Fortado in London at Ben Moshinsky in London at

To contact the editor responsible for this story: Anthony Aarons at

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