The trial of alleged UBS rogue trader Kweku Adoboli began today in Southwark Crown Court. Adoboli has denied four charges – two of false accounting and two of fraud by abuse of position – relating to his trading activities from almost exactly one year ago. I blogged about his arrest last year here and here.
I’m looking forward to the opportunity (hopefully) afforded by the trial to learn about the facts surrounding this case. Compared to some other recent rogue traders, I still feel that relatively little is known about Adoboli’s motivations, relationships at the bank, and trades.
There is a good article in today’s FT outlining the prosecutor’s opening arguments, and a nice opinion piece from John Gapper yesterday (not explicitly tied to the Adoboli case, though I think related) on how the financial incentive to behave badly is likely to continue at banks in the face of recently-announced reforms from Deutsche, Barclays, and others. I can’t for the life of me find the comment online (plea to the FT: why can’t you improve your search functionality??)
I will be back to unpack the prosecution’s arguments in some more detail later. But for now, I will simply say that the bulk of the facts alleged will do nothing to rehabilitate UBS in the eyes of most critics, though it appears the prosecutor’s goal is to paint UBS as a victim of Adoboli’s scheming.
For example, the prosecution has argued that Adoboli had been hiding positions and falsifying records for nearly three years, that his trades were so large and complex that they nearly destroyed UBS prior to being unwound last year, that he used his knowledge of the back office to create “slush funds” unknown to superiors, and that his pay increased dramatically during this time period of hidden trades and false records from £65,000 in 2008 to £360,000 in 2010, while his bonus increased by more than 16 times to £250,000. While these may be the marks of a scheming, dishonest trader, they are also the mark of a bank with a poor compliance system, incentive problems, supervisory issues, and – most likely – risk culture issues that need to be examined in more detail.
Finally, I wanted to call attention to one portion of the prosecutor’s opening statement:
She alleged his activities were “far more deliberate than that of a mere rogue trader” because he “faked bookings. He created false accounts and conducted himself as a master fraudster, deliberately and systematically deceiving and defrauding the bank which was employing him.” (emphasis mine)
Umm . . . no. That’s pretty much the definition of a rogue trader.
(Photo: The Associated Press)
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