LONDON A UBS trader raised the issue of a "slush account" in an electronic chat with Kweku Adoboli months before he was arrested over allegations he lost the Swiss bank $2.3 billion, a London court heard on Monday.
Appearing as a witness at Adoboli's trial, Darren Bailey rejected as "ridiculous" an accusation by the accused former trader's lawyer that he ran a hidden trading book that had served as the template for Adoboli's illicit "umbrella" account.
Adoboli, 32, was arrested on September 15, 2011, and has pleaded not guilty to two charges of fraud and two of false accounting.
The prosecution says he routinely exceeded his trading limits, booked fake trades into the accounts to mask his true positions, and held back some of the profits from his unauthorized deals in his umbrella.
The defense says Adoboli believed he was acting for the good of the bank and was open about his methods with many of his colleagues.
In one group chat from March 17, 2011, read out in court, Adoboli and Bailey discussed that week's trading and Adoboli said that it had been "emotional".
"Have you used the slush acct (account)?" Bailey asked in response.
Bailey, who still works for UBS and had denied during the first part of his evidence on Friday that he knew anything about the umbrella, said he did not have an explanation for the comment.
"I am genuinely shocked by this. I don't know what the context to that could have been. I am genuinely surprised," he said.
Adoboli's defense lawyer Paul Garlick said Bailey had been "caught out" and suggested that the comment showed he had been aware of the umbrella.
In his evidence on Friday, Bailey had admitted that once, in June 2011, he had accepted an offer from Adoboli to "warehouse" a trade overnight.
This meant that on that occasion, a trade executed by Bailey was booked into Adoboli's book rather than his own.
Repeatedly pressed on why it had been necessary to warehouse the trade, Bailey said he could not remember.
Garlick put it to Bailey that the episode showed that there was a culture of rule-breaking among UBS traders. Bailey denied this, saying that the following day, his manager had reprimanded him and banned him from trading futures for three months.
Concluding his cross-examination of Bailey on Monday, Garlick went further in his allegations against Bailey.
Presenting a spreadsheet sent by Bailey to Adoboli in April 2011, after Adoboli had done a trade on Bailey's behalf, Garlick told the witness that this was "your version of an umbrella".
He went on to say that Bailey's spreadsheet had been "the genesis" of the umbrella later operated by Adoboli for the benefit of his Exchange Traded Funds desk. Bailey worked on a separate trading desk.
Bailey rejected Garlick's allegations as "ridiculous" and "outlandish".
Prosecutor Sasha Wass suggested through her questions to Bailey that Adoboli had created the umbrella at least a year and a half before his exchanges with Bailey in April 2011.
She referred to a spreadsheet which Adoboli went into the office on the day after Christmas 2009 to send from his work computer to his personal email address.
The prosecution had previously argued that this spreadsheet was the umbrella, and that Adoboli made the brief visit to the office because he needed time during the Christmas holiday to work on the illicit account.
The trial at Southwark Crown Court continues on Tuesday.
(Editing by Alison Williams and Pravin Char)