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UBS

UBS trader ‘gambled away’ $2.3 billion

A trader "gambled away" $2.3 of leading Swiss bank UBS's money, causing "chaos and disaster", his trial in London heard on Friday.

Published: 14 September 2012 14:44 CEST

Kweku Adoboli, 32, traded beyond his permitted limits at the bank's offices in London because he was trying to earn a bigger bonus and wanted to boost his ego, a prosecution lawyer told the court.

Adoboli thought he had the "magic touch" but his actions rocked UBS, lawyer Sasha Wass told the 12-person jury as she outlined the case against the Ghanaian-born son of a former United Nations official.

"He is on trial because he lost his bank 2.3 billion US dollars. He fraudulently gambled it away. He also in doing so wiped around 10 percent or about 4.5 billion US dollars off the bank's share price," Wass said.

"He did all of this by exceeding his trading limits, by inventing fictitious deals to conceal this and then he lied to his bosses.   

"Mr Adoboli's motive for this behaviour was to increase his bonus, his status within the bank, his job prospects and of course his ego.

"Like most gamblers, he believed he had the magic touch. Like most gamblers, when he lost, he caused chaos and disaster to himself and all of those around him."

Adoboli denies two charges of fraud and two charges of false accounting relating to a period between October 2008 and September last year.

The court heard he sent an email admitting to trying to hide his mammoth losses, but by the time he was arrested the next day the bank's share price had dived.

UBS, Switzerland's largest bank, is not represented in the trial, but is bracing itself for potentially awkward revelations about its supervision of staff.

The jury was told that the trader managed to hoodwink the bank due to the "extensive knowledge" of its systems gained during his time working in the back office.

Adoboli graduated to the front office, where the trading team operates, in 2005, before moving up to the exchange traded funds desk in 2006.

This desk deals in securities which track certain market indices and are traded like ordinary shares.

He fooled the bank's double entry accounting system, in which each entry is balanced by an equal entry elsewhere in the records, by inventing fictitious deals, the jury heard.

Traders mitigate risk during a transaction by carrying out a similar deal in the opposite direction, hedging any unfavourable market fluctuations.

According to the prosecutor, Adoboli faked hedge deals by inventing clients, leaving the bank exposed to huge absolute losses when the market turned against him.

Despite the colossal losses, UBS's chief executive at the time, Oswald Grübel, refused to step down.

The bank's honorary chairman Nikolaus Senn, however, said that adequate checks had not been implemented and criticized Grübel for his over-reliance on the controls system to uncover problems.

Grübel eventually left UBS. His replacement, Sergio Ermotti, admitted in a statement to staff this month that the case would be "uncomfortable" for the bank.

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FRANCE

Switzerland’s UBS faces €3.7-billion fine as crucial court ruling looms

A Paris court will rule Wednesday on whether Swiss banking giant UBS illegally tried to convince French clients to hide billions of euros in Switzerland, charges which prompted prosecutors to seek a record €3.7-billion fine.

Published: 19 February 2019 09:10 CET
Switzerland's UBS faces €3.7-billion fine as crucial court ruling looms
UBS denies charges it helped French clients evade tax and says it will defend itself "vigorously". Photo: AFP

The trial opened last autumn after seven years of investigations, launched when several former employees came forward with claims of unlawful conduct. 

The move came as authorities across Europe cracked down on tax evasion and dubious banking practices in the wake of the global financial crisis which erupted in 2007.

The pressure eventually forced Switzerland to effectively end its tradition of ironclad bank secrecy, by joining more than 90 countries which agreed to automatically share more client account information among each other.

In the UBS case, French authorities determined that more than €10 billion had been kept from the eyes of tax officials between 2004 and 2012.

The National Financial Prosecutor's office urged a €3.7-billion ($4.2 billion) fine, the largest ever sought in France, saying the bank and its directors “were perfectly aware that they were breaking French law” by unlawfully soliciting clients and helping them evade French taxes.

They also sought a €15 million fine for UBS's French subsidiary, and fines of up to €500,000 for six top executives, including Raoul Weil, the former third-in-command at UBS, and Patrick de Fayet, formerly the second-ranking executive for its French operations.

In addition, lawyers for the French state, which is a plaintiff in the case, asked for €1.6 billion in damages.

UBS, which was ordered to post €1.1 billion in bail, has denied the charges and said its operations complied with Swiss law.

It also says that it was “unaware” that some French clients had failed to declare assets in Switzerland, and that prosecutors have not produced any proof, such as client names or account numbers, to back up their fraud claims.

The case is being closely watched by industry executives at a time when Paris and other European capitals are hoping to lure multinational banks from London as Brexit looms.

'Milk tickets'

UBS is accused of organising or inviting prospective clients to prestigious outings such as the French Open or luxury hunting retreats, where UBS's Swiss bankers would meet their “prospects” — something they were not allowed to do under French law.

UBS France directors then used notes called “milk tickets” to keep track of how many “milk cans” – amounts of money – were transferred to Swiss accounts.

They say the system was merely a way to balance out bonuses due to French bankers who were effectively losing a client to their Swiss peers, and the notes were later destroyed.

But investigators claim the “milk tickets” were proof that UBS had a parallel accounting system for keeping the transfers off its official books.

Only one “milk ticket” was found during the inquiry, prompting defence lawyers to argue there was no proof to justify claims of a massive fraud.

Yet prosecutors pointed to the roughly 3,700 French UBS clients who later took advantage of an amnesty offer to regularise their tax declarations with the French authorities.

UBS has been embroiled in a series of similar cases, most notably in the United States, where the authorities said the bank used Switzerland's banking secrecy laws to help rich clients avoid taxes.

In 2009 it paid $780 million to settle charges it helped thousands of American citizens hide money from the Internal Revenue Service, and agreed to turn over information on hundreds of clients, severely denting Switzerland's long tradition of shielding banking clients and their operations from prying eyes.

That case was also prompted by a former American UBS employee turned whistleblower, Bradley Birkenfeld, whose book “Lucifer's Banker: The Untold Story of How I Destroyed Swiss Bank Secrecy” was published in 2016.

Last November UBS was again sued by US authorities, who accuse the bank of misleading investors over the sale of mortgage-backed securities in 2006 and 2007, just before the financial crisis struck.

UBS has denied the charges and said it will defend itself “vigorously”.