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Three Unauthorized Trades Discovered by UBS

On Thursday, a London court heard that managers from UBS have fired two traders involved in unauthorized trading that are unrelated to Kweku Adoboli, an accused fraudster. The jury was presented evidence about an internal UBS probe into trades made by Adoboli that found “strong evidence of collusion at local desk level”. Adoboli has been charged with two counts of fraud and two counts of false accounting. He has been accused of losing $2.3 billion announced in September of 2011.

When Colin Bell, the global head of operational risk control for UBS, was cross-examined, three separate and previously unknown unauthorized trading incidents were mentioned. Bell did not disclose the dates of the incidents or details about them. He did tell the court that two out of the three traders involved were fired.

The issue arose during cross-examination when the lawyer for Adoboli, Charles Sherrard, presented the incidents to prove that UBS does not have strong compliance systems in place. Bell was asked if the incidents led to the dismissal of two employees and if they also caused the bank to lose money, Bell said there was “an element of restating of perceived profit and loss.” Bell then said that there he will “draw a distinction” from the three issues.

While on the stand, Bell said that these incidents do not “fall into the same bucket” with the Adoboli incident. In the Adoboli case, he has been accused of exceeding risk limits and then hiding his unhedged positions with fictitious bookings.



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Sherrard used a document from KPMG to discuss auditors who investigated the incident at the Exchange Traded Funds desk of Adoboli. The document said that UBS told KPMG about the three fraudulent issues. KPMG was asked by the regulators and UBS not to investigate the three incidents as part of the probe for Adoboli.

During the hearing Thursday, Sherrard read excerpts from a report conducted by UBS internally that had the date of December 9, 2011 on it. “The supervision of the ETFs trading activity … was ineffective,” the report said. “A director-level peer of Kweku Adoboli was allocated supervisory responsibility for the desk and their mutual line manager was based in the U.S.” Those comments were in reference to John Hughes, who is a senior trader at the EFTs desk and John DiBacco, a manager who holds responsibility for the desk based in London back in April of 2011.

After Adoboli was arresred, Hughes and DiBacco were fired from UBS and have appeared in court as witnesses. “The supervisor (Hughes) had never completed supervisory training despite being invited to attend 17 times by compliance,” the internal report said.

“Nevertheless, there is strong evidence of collusion at local level … The local supervisor was aware of Mr Adoboli’s propensity to smooth profit and loss and to take unacceptably high levels of net delta (risk),” it said.

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