September 14, 2012 / 4:15 PM / in 5 years

UPDATE 1-UBS not to blame for "rogue trader" -prosecutor

By Michael Holden

LONDON, Sept 14 (Reuters) - UBS was not to blame for the actions of a “rogue trader” who cost the Swiss bank $2.3 billion as no system can prevent a dishonest employee abusing a trusted position, the lawyer prosecuting former UBS trader Kweku Adoboli said on Friday.

Sasha Wass told a London court that Adoboli knew how to cheat the bank’s control system, lied to his bosses and falsified records to hide what he was doing.

She told the jury at Southwark Crown Court the bank should not unduly be criticised for Adoboli’s actions.

”They respected him and he abused their trust to cheat them for his own eventual gain,“ she said. ”He fooled his colleagues but eventually the system caught up with him.

“Despite Mr Adoboli’s back office knowledge even he was eventually caught by the checks.”

However, Wass told the jury that Adoboli, who denies two charges of fraud and two of false accounting, would say UBS managers were fully aware of what he was doing.

“As part of his defence during this case, he will now say that the management of the bank were fully complicit in this fraud,” she said.

The British and Swiss financial regulators, the FSA and FINMA, said on Feb. 3 they were launching enforcement investigations into events at UBS. These are still going on.

Such investigations have sometimes resulted in fines and new regulatory requirements on banks.

Adoboli began his career with UBS in their Operations Department of the investment banking division. This meant he learned about the bank’s book-keeping structures and also the system’s weaknesses, Wass said.

So when he began making losses and carrying out unauthorised trades to try to cover these up in 2008, he knew how to falsify his records so the bank would be kept in the dark.

Wass told the court that in an email he sent to the bank on Sept. 14, 2011 when he revealed the losses, he had clearly admitted breaking the rules, lying to his supervisors and fooling his colleagues.

“I will expect questions will be asked as to why nobody else was aware of these trades,” he wrote.

But during meetings later that same day, Wass said Adoboli changed his story and asserted that three colleagues on his desk were aware of his behaviour.

“The fact that some of his trading colleagues later may have become aware of his fraudulent scheme many years after it was devised cannot be a defence to this charge,” Wass said.

“It was Mr Adoboli who was architect and manager of the fraud and the bank, which was totally unaware of what was going on, who was the victim of it.”

She said the jury may wonder why the bank did not have a system of double checks which would have thrown up what Adoboli was up to.

To this she said there were three answers. Adoboli had eventually been caught by the bank’s system; he was a trusted long-term employee; he had found a way of fooling UBS’s double-entry book-keeping methods by inventing a balancing trade for each false deal so his “gambling” was concealed.

“There is no system in the world that can stop a dishonest person in a position of trust abusing that trust,” Wass said.

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