UBS "rogue trader" colleague knew but covered back: lawyer

LONDON Wed Oct 17, 2012 2:44pm EDT

Former UBS trader Kweku Adoboli arrives at Southwark Crown Court in London September 27, 2012. Adoboli is on trial accused of fraud and false accounting that cost the Swiss bank $2.3 billion. He has pleaded not guilty.. REUTERS/Stefan Wermuth

Former UBS trader Kweku Adoboli arrives at Southwark Crown Court in London September 27, 2012. Adoboli is on trial accused of fraud and false accounting that cost the Swiss bank $2.3 billion. He has pleaded not guilty..

Credit: Reuters/Stefan Wermuth

LONDON (Reuters) - A former colleague of Kweku Adoboli denied on Wednesday that he knew the UBS (UBSN.VX) "rogue trader" had been booking fictitious trades at the Swiss bank months before losses of $2.3 billion came to light.

Rory Boulton, whose team provided trade support for Adoboli's Exchange Traded Funds (ETFs) desk, also denied that an email reporting a booking problem to bosses was an attempt to "cover his back" after it dawned on him huge losses could be incurred.

Adoboli was arrested on September 15, 2011, and is now on trial at London's Southwark Crown Court accused of fraud and false accounting. He has pleaded not guilty.

Boulton, who still works for UBS, was called as a prosecution witness because he was among several back-office staffers who raised queries about problems with the ETFs desk's books in the summer of 2011.

Boulton's team provided support for the ETFs desk from October 2010. The prosecution presented an email sent by Boulton to Adoboli, dated August 30, 2011, in which he queried a particular trade that had been cancelled and re-booked.

"Can you please explain the reason for the delayed settlement and confirm this is a good trade?" Boulton asked Adoboli in the email, which was copied to several others including Boulton's boss Rory Keating.

Boulton testified that he had received a response from Adoboli that he did not fully understand, and thus had escalated the issue to business management.

The prosecution have argued that over the summer of 2011, Adoboli was facing more and more questions from the UBS back office and was coming up with convoluted explanations to obfuscate the truth about huge, unhedged trading positions.

They have said that the frequent booking of trades with unusually long settlement dates was one of Adoboli's methods in what they have described as his "pyramid of fraud".

"TIME TO COVER YOUR BACK"

But in his cross-examination of Boulton, defense lawyer Paul Garlick sought to shine a very different light on the August exchange.

Garlick read out several electronic chats between Boulton and Adoboli from earlier in the year, which he said showed that Adoboli had been very open with Boulton about exactly what he was doing.

"Do these three 100k buys still stand? How come the value date is pushed a month forward?" Boulton asked Adoboli during a chat dated February 16.

"So that I have a bit of time to do the creations. Gives me a bit of leeway on the entry for it," Adoboli responded.

"OK. I'll just tell the setts (settlements) guys we have a borrow covered for now," said Boulton.

Garlick said this was among several examples that showed Boulton had been aware that some of the ETFs desk's bookings were fictitious and that long settlement dates were being used for convenience.

"There is nothing in this chat that says 'shock, horror, that's not on', is there?" he told Boulton, who agreed.

Prompted by Garlick's questions, Boulton testified that in 2011, he had been keen to move out of the back office and into a trading role on the ETFs desk. With that in mind, he had communicated often with Adoboli and had been eager to learn from the senior trader.

Garlick suggested that Boulton's attitude towards Adoboli had changed in the late summer, when he had realised that the ETFs desk could be heading for huge losses and that he might get in trouble for going along with Adoboli's practices up until that point.

"You realised it was time to cover your back and you sent that email," Garlick told Boulton, referring to the August 30 email that was copied to several others. Boulton denied this, saying it was "just a normal day-to-day query".

"You realised that what you had implicitly been condoning, the use of fictitious and dummy trades, could get you into trouble, didn't you?" said Garlick.

"I didn't know about any fictitious or dummy trades," Boulton said.

This line of argument was part of a broader strategy by Adoboli's defense team, who have sought to show that many others at UBS knew what the trader was doing.

They have accused the three other traders on the ETFs desk of "stabbing him in the back" by denying any knowledge when in fact, the defense said, they had been complicit in his actions.

The trial continues on Thursday.

(Reporting by Estelle Shirbon; Editing by Pravin Char)