2011 UBS rogue trader scandal

Unauthorized trading incident October 2020 thumb|290x290px|Kweku Adoboli illegally traded away over US$2 billion dollars at Swiss bank UBS. The 2011 UBS rogue trader scandal caused a loss of over US$2 billion at Swiss bank UBS, as a result of unauthorized trading performed by Kweku Adoboli, a director of the bank's Global Synthetic Equities Trading team in London in early September 2011.Rogue trader causes US$2 billion loss at UBS Frank Jordans 2011-09-15 https://news.yahoo.com/rogue-trader-causes-2-billion-loss-ubs-084322115.html Associated Press 2025-08-09 5 November 2012 https://web.archive.org/web/20121105215432/http://news.yahoo.com/rogue-trader-causes-2-billion-loss-ubs-084322115.html dead Yahoo NewsUBS trader Adoboli held over US$2bn loss Megan Murphy Kate Burgess Sam Jones Haig Simonian https://web.archive.org/web/20111214174707/http://www.ft.com/cms/s/0/258a38d2-df6a-11e0-845a-00144feabdc0.html 2011-12-14 http://www.ft.com/intl/cms/s/0/258a38d2-df6a-11e0-845a-00144feabdc0.html#axzz1Y1jNMZgo Financial Times 15 September 2011 2025-08-09 On 24 September 2011, Oswald Grübel, the CEO of UBS, resigned "to assume responsibility for the recent unauthorized trading incident", according to a memo to UBS staff. On 5 October Francois Gouws and Yassine Bouhara, the co-heads of Global Equities at UBS, also resigned."UBS Equities Chiefs Resign in Wake of Scandal https://web.archive.org/web/20180507153918/https://www.wsj.com/articles/SB10001424052970203476804576613022086838188?mod=djemalertNEWS 7 May 2018 " 5 October 2011 It later emerged that UBS had failed to act on a warning issued by its computer system about Adoboli's trading.http://www.computerweekly.com/Articles/2011/10/06/248087/UBS-systems-detected-2bn-rogue-trader-fraud-admits-CEO-Sergio.htm Computer Weekly 6 Oct 2011 10 October 2011 8 October 2011 https://web.archive.org/web/20111008173436/http://www.computerweekly.com/Articles/2011/10/06/248087/UBS-systems-detected-2bn-rogue-trader-fraud-admits-CEO-Sergio.htm live http://www.itworld.com/security/211369/ubs-admits-its-security-system-did-spot-trader-who-lost-2b-ignored-it IT-World 7 Oct 2011 10 October 2011 12 October 2011 https://web.archive.org/web/20111012050744/http://www.itworld.com/security/211369/ubs-admits-its-security-system-did-spot-trader-who-lost-2b-ignored-it/ live King Leo 2011-10-06 UBS: Our risk systems did detect £1.3bn rogue trader http://www.computerworlduk.com/news/it-business/3308928/ubs-our-risk-systems-did-detect-13bn-rogue-trader/ dead https://web.archive.org/web/20120529144549/http://www.computerworlduk.com/news/it-business/3308928/ubs-our-risk-systems-did-detect-13bn-rogue-trader/ 2012-05-29 2022-02-11 Computerworld UK After two delays requested by Adoboli and a change of legal representation, Adoboli pleaded not guilty to two counts each of fraud and false accounting on 30 January 2012. He was released on conditional bail after a bail application at Southwark Crown Court on 8 June 2012. He was later convicted of both counts of fraud and sentenced to seven years imprisonment. He appealed against both conviction and sentence.https://www.theguardian.com/business/2013/mar/01/ubs-kweku-adoboli-appeal-conviction London The Guardian Former UBS trader Kweku Adoboli to appeal against fraud conviction 1 March 2013 10 December 2016 27 September 2016 https://web.archive.org/web/20160927185447/https://www.theguardian.com/business/2013/mar/01/ubs-kweku-adoboli-appeal-conviction live Incident On 15 September 2011, Adoboli was arrested under suspicion of fraud in connection with losses then-estimated at US$2 billion, reportedly due to unauthorized trading at the Swiss group's investment bank. A spokesperson from the Swiss banking regulator FINMA referred to the case as one of the biggest ever seen at a Swiss bank. Adoboli had originally retained the law firm of Kingsley Napley, which previously advised Nick Leeson.Fortado Lindsay UBS Trader Kweku Adoboli Hires Law Firm That Advised Nick Leeson Bloomberg 16 September 2011 http://www.businessweek.com/news/2011-09-16/ubs-trader-kweku-adoboli-hires-law-firm-that-advised-nick-leeson.html https://archive.today/20130118152805/http://www.businessweek.com/news/2011-09-16/ubs-trader-kweku-adoboli-hires-law-firm-that-advised-nick-leeson.html dead 18 January 2013 16 September 2011 However, he then changed his legal representation to Bark & Co and Furnival Chambers, with the fees being paid by legal aid.Fortado Lindsay Ben Moshinsky Ex-UBS Trader Adoboli Pleads Not Guilty to $2.3B Loss Bloomberg 30 January 2012 https://www.bloomberg.com/news/2012-01-30/ex-ubs-trader-adoboli-pleads-not-guilty-to-fraud-false-accounting-charges.html 30 January 2012 2 February 2012 https://web.archive.org/web/20120202065834/http://www.bloomberg.com/news/2012-01-30/ex-ubs-trader-adoboli-pleads-not-guilty-to-fraud-false-accounting-charges.html live On 30 January 2012 he pleaded not guilty to two charges of fraud and two charges of false accounting and faced up to 10 years in prison if convicted of all charges.Griffiths Peter Ex UBS trader Adoboli denies fraud, faces trial Reuters 30 January 2012 https://www.reuters.com/article/us-britain-adoboli-idUSTRE80T0J720120130 30 January 2012 11 March 2016 https://web.archive.org/web/20160311204417/http://www.reuters.com/article/us-britain-adoboli-idUSTRE80T0J720120130 live The loss to UBS was described as "manageable" although it might cause UBS to report a net loss in the following financial quarter. The bank's net earnings for the year ending June 2011 were $6.4 billionLaurence Knight, Q&A: How do rogue traders do it? https://web.archive.org/web/20160614004515/http://www.bbc.co.uk/news/business-14929257 14 June 2016 , BBC, 15 September 2011. with a gross profit of approximately $1.1 billion reported by UBS for the third quarter of 2011.UBS reports profit despite trading scandal https://www.bbc.co.uk/news/business-15441961 7 August 2012 BBC News 25 October 2011 31 December 2011 https://web.archive.org/web/20111231063545/http://www.bbc.co.uk/news/business-15441961 liveUBS third-quarter pre-tax profit CHF 1 billion; wealth management businesses' net new money CHF 7.8 billion; BIS tier 1 capital ratio 18.4% https://www.ubs.com/global/en/about_ubs/media/global/releases/news_display_media_global.html/en/2011/10/25/pre_tax_profit.html UBS 15 August 2012 30 November 2012 https://web.archive.org/web/20121130181117/http://www.ubs.com/global/en/about_ubs/media/global/releases/news_display_media_global.html/en/2011/10/25/pre_tax_profit.html live On 15 September, the day of Adoboli's arrest, the price of the stock of UBS closed down 10.8%, while the price of other European bank stocks rose between 3–6%.Simon Kennedy, "Banks soar in Europe after liquidity move, UBS uncovers $2 billion unauthorized trading loss" https://web.archive.org/web/20121018194656/http://www.marketwatch.com/story/banks-and-retailers-lift-europe-ubs-drops-2011-09-15?siteid=bnbh 18 October 2012 . Market Watch, 15 September 2011, 12:10 pm EDT It has been reported that Adoboli informed UBS of his unauthorized trades, and then the bank informed the Financial Services Authority and the police.http://www.investoo.co.uk/rogue-trader-kweku-adoboli-handed-himself-in-to-ubs/ Rogue Trader Kweku Adoboli handed himself in to UBS Investoo.co.uk 16 September 2011 16 September 2011 https://web.archive.org/web/20111006144201/http://www.investoo.co.uk/rogue-trader-kweku-adoboli-handed-himself-in-to-ubs/ 6 October 2011 dead On 16 September, it was announced that City of London Police charged Adoboli with fraud by abuse of position and false accounting.http://www.investoo.co.uk/kweku-adoboli-charged-by-police-over-ubs-fraud/ Kweku Adoboli charged by police over UBS fraud Investoo.co.uk 16 September 2011 16 September 2011 https://web.archive.org/web/20111006144144/http://www.investoo.co.uk/kweku-adoboli-charged-by-police-over-ubs-fraud/ 6 October 2011 dead On 18 September 2011, UBS issued a statement which revealed the losses from the alleged unauthorized trading stood at $2.3 billion. The rogue trader reportedly racked up the losses by speculating on EuroStoxx, DAX and S&P 500 indexes.http://www.investoo.co.uk/ubs-reveals-how-rogue-trader-beat-the-system/ UBS reveals how rogue trader beat the system Investoo.co.uk 18 September 2011 18 September 2011 https://web.archive.org/web/20110923164115/http://www.investoo.co.uk/ubs-reveals-how-rogue-trader-beat-the-system/ 23 September 2011 dead The prosecutor in Adoboli's trial, Sasha Wass, stated that Adoboli "was a gamble or two from destroying Switzerland's largest bank for his own benefit."https://www.bbc.co.uk/news/uk-19595217 UBS trader Kweku Adoboli 'gambled away' £1.4bn BBC 2012-09-14 20 June 2018 9 October 2018 https://web.archive.org/web/20181009131402/https://www.bbc.co.uk/news/uk-19595217 live According to Business Insurance, as in the case of the unauthorized trades by Nick Leeson at the Singapore office of Barings Bank, the Adoboli incident took place at a location away from the bank's central office, where the risk management systems are typically stronger.http://www.businessinsurance.com/article/20111002/NEWS07/310029982?tags=%7C338%7C256%7C302%7C303 Business Insurance 2 October 2011 2 October 2011 1 November 2011 https://web.archive.org/web/20111101074856/http://www.businessinsurance.com/article/20111002/NEWS07/310029982?tags=%7C338%7C256%7C302%7C303 live Perpetrator Kweku Adoboli was born 21 May 1980.Trader in UBS scandal was a ‘loyal’ employee https://web.archive.org/web/20230811223451/https://www.ft.com/content/d5547ba0-e05b-11e0-ba12-00144feabdc0#axzz1YlOqoQmj 11 August 2023 Financial Times, 16 September 2011 His family home was in Tema, Ghana, but he has lived in the UK since 1991 and been described as "British by culture, citizenry and fame."Sule Ahmed Kweku Adoboli: Every 'criminal' is Nigerian, African BusinessDay 20 September 2011 http://www.businessdayonline.com/NG/index.php/analysis/commentary/27501-kweku-adoboli-every-criminal-is-nigerian-african 20 September 2011 dead https://web.archive.org/web/20121116070032/http://www.businessdayonline.com/NG/index.php/analysis/commentary/27501-kweku-adoboli-every-criminal-is-nigerian-african 16 November 2012 He graduated from the University of Nottingham, where he studied computer science and management, in 2003. Prior to this, he studied at Ackworth School (a Quaker-run private boarding school near Leeds), where he was Head Boy between 1997 and 1998, the year he graduated. http://www.itv.com/yorkshire/fullprogramme Yorkshire Regional News itv.com 15 September 2011 26 September 2011 https://web.archive.org/web/20110926185210/http://www.itv.com/yorkshire/fullprogramme/ live According to the Daily Telegraph, shortly before the news of the incident broke, Adoboli had posted on his Facebook account that "I need a miracle". Kweku's father, John Adoboli, is a former Ghanaian official at the United Nations. On the day of his son's arrest, he expressed the family's shock and disbelief: "We are all here reading all the materials and all the things being said about him. The family is heartbroken because fraud is not our way of life."REFILE-Rogue trade suspect's family "heartbroken" Reuters 15 September 2011 http://news.sky.com/home/business/article/16071256 23 September 2011 23 September 2011 https://web.archive.org/web/20110923153116/http://news.sky.com/home/business/article/16071256 live Mechanics According to UBS, Adoboli had disguised the risk of his trades by using "forward-settling" ETF cash positions.https://www.telegraph.co.uk/finance/financial-crime/8772540/Fictitious-hedges-see-UBS-rogue-trader-losses-climb-to-2.3bn.html 'Fictitious' hedges see UBS rogue trader losses climb to $2.3bn Ben Harrington The Daily Telegraph 18 September 2011 2 April 2018 13 July 2017 https://web.archive.org/web/20170713084547/http://www.telegraph.co.uk/finance/financial-crime/8772540/Fictitious-hedges-see-UBS-rogue-trader-losses-climb-to-2.3bn.html live According to the Financial Times, and other sources, Adoboli is suspected to have used the fact that some ETF transactions in Europe are not issued confirmations until after settlement has taken place. The exploitation of this process allows a party in a transaction to receive payment for a trade before the transaction has been confirmed.Moshe Silver 2011-09-27 CNNMoney http://finance.fortune.cnn.com/2011/09/27/the-fine-line-between-bad-luck-and-rogue-trades/ The fine line between bad luck and rogue trades 3 October 2011 https://web.archive.org/web/20111014095059/http://finance.fortune.cnn.com/2011/09/27/the-fine-line-between-bad-luck-and-rogue-trades/ 14 October 2011 dead While the cash proceeds in this scheme cannot be simply retrieved, the seller may still show the cash on their books and possibly use it in further transactions. The process of orchestrating failure to deliver (FTD) trades may then be used in a carousel of transactions.Selwyn Parker Kweko Adoboli is not Alone in World Finance 20 October 2011 https://web.archive.org/web/20111110004236/http://www.worldfinance.com/news/worldnews/breaking-views/2183-kweku-adoboli-isnt-alone/ 10 November 2011 Unlike in the United States, no data about the volume of FTDs is available for Europe.As an example, see: SEC Fails-to-deliver data https://web.archive.org/web/20170303011756/http://www.sec.gov/foia/docs/failsdata.htm 3 March 2017 CNN and World Finance also stated that some banks have deliberately allowed certain levels of FTDs, as a method of "dealing with financial stress" so that between accounting cycles the value of securities sold, but not delivered, as well as the value of the cash booked, but not received can be reflected on the books.http://citywire.co.uk/wealth-manager/could-the-ubs-fictitious-etf-trade-happen-again/a531171 Could the UBS ‘fictitious’ ETF trade happen again? Emma Dunkley Citywire 2011-10-10 10 October 2011 12 October 2011 https://web.archive.org/web/20111012172855/http://citywire.co.uk/wealth-manager/could-the-ubs-fictitious-etf-trade-happen-again/a531171 live In October 2011, Sergio Ermotti, the then-interim CEO of UBS, after the departure of Grübel, admitted that the computer system at UBS had detected the unauthorized trading activities of Adoboli beforehand and had issued a warning, but the bank had failed to act on the warning. In May 2012, Sergio Ermotti, Group CEO, spoke at the UBS AGM about the changes implemented following the scandal. Ermotti spoke of improved internal monitoring and deficiencies in the financial reporting control system that have been addressed. Ermotti also made reference to employees that have been replaced or had pay docked due to serious mistakes or unreasonable behaviour.https://www.ubs.com/global/en/about_ubs/media/global/unauthorized_trading_incident/03052012_auszug_referat_s_ermotti.popup.html UBS 3 May 2012 27 August 2014 https://archive.today/20140827075521/https://www.ubs.com/global/en/about_ubs/media/global/unauthorized_trading_incident/03052012_auszug_referat_s_ermotti.popup.html 27 August 2014 dead Aftermath On 24 September 2011 Oswald Grübel, the CEO of UBS resigned "to assume responsibility for the recent unauthorized trading incident", according to a memo to UBS staff.UBS CEO quits https://web.archive.org/web/20160306094846/http://www.reuters.com/article/us-ubs-idUSTRE78L7IB20110924?feedType=RSS&feedName=topNews&rpc=71 6 March 2016 Reuters, 24 September 2011:Memo to UBS staff https://web.archive.org/web/20160305070629/http://www.reuters.com/article/villiger-ermotti-memo-idUSL5E7KO0JX20110924 5 March 2016 Reuters, 24 September 2011https://www.wsj.com/articles/SB10001424053111903703604576590360296856144 Wall Street Journal, 24 Sep 2011 WSJ 3 August 2017 15 October 2017 https://web.archive.org/web/20171015090512/https://www.wsj.com/articles/SB10001424053111903703604576590360296856144 live Bloomberg reported UBS to be "in disarray" following the departure of the CEO as a result of the scandal.https://www.bloomberg.com/news/2011-09-25/ubs-in-disarray-as-gruebel-quits-ermotti-named-interim-chief.html Bloomberg 25 Sep 2011: UBS in 'Disarray' Bloomberg 25 September 2011 4 March 2017 6 November 2012 https://web.archive.org/web/20121106181324/http://www.bloomberg.com/news/2011-09-25/ubs-in-disarray-as-gruebel-quits-ermotti-named-interim-chief.html live Ten days later the co-heads of Global Equities at UBS, Francois Gouws and Yassine Bouhara, also resigned. UBS stated that no client's funds were lost as a result of the scandal, but according to The Daily Telegraph, the reputation of UBS could suffer "significant damage", and that the amount lost was almost the same as the savings UBS had planned via the elimination of 3,500 jobs.I need a miracle: rogue trader Kweku Adoboli who lost UBS £1.3bn The Daily Telegraph 15 September 2011 https://web.archive.org/web/20220707015802/https://www.telegraph.co.uk/finance/newsbysector/banksandfinance/8767089/I-need-a-miracle-rogue-trader-Kweku-Adoboli-who-lost-UBS-1.3bn.html 7 July 2022 live https://www.telegraph.co.uk/finance/newsbysector/banksandfinance/8767089/I-need-a-miracle-rogue-trader-Kweku-Adoboli-who-lost-UBS-1.3bn.html In mid-November 2011 UBS announced that it would cut back half of the risk-weighted assets in its investment bank over the next five years to reduce risk exposure in the wake of the trading scandal.https://www.ft.com/content/5aa094e4-1142-11e1-9d04-00144feabdc0 UBS to take axe to investment banking Financial Times 17 Nov 2011 18 November 2011 18 November 2011 https://web.archive.org/web/20111118122010/http://www.ft.com/cms/s/0/5aa094e4-1142-11e1-9d04-00144feabdc0.html?ftcamp=rss#axzz1e46wlCoF live In June 2012 UBS announced that their ongoing investigation had resolved the weaknesses that made the unauthorized trading possible. Along with their auditors, Ernst & Young Ltd., UBS aimed to confirm this with internal control of financial reporting in December 2012.https://www.ubs.com/global/en/about_ubs/media/global/unauthorized_trading_incident/evaluation_020512.html Update on internal control over financial reporting UBS 7 June 2012 27 August 2014 https://archive.today/20140827075627/https://www.ubs.com/global/en/about_ubs/media/global/unauthorized_trading_incident/evaluation_020512.html 27 August 2014 dead On 26 November 2012, the United Kingdom's financial regulator fined UBS £29.7 million ($47.6 million) for system and control failings that allowed Kweku Adoboli to cause over $2 billion losses through unauthorized trading in London.UK regulator fines UBS $47 million over rogue trader case https://www.reuters.com/article/us-britain-ubs-idUSBRE8AP06A20121126 Reuters 26 November 2012 26 November 2012 11 March 2016 https://web.archive.org/web/20160311173701/http://www.reuters.com/article/us-britain-ubs-idUSBRE8AP06A20121126 live See also List of trading losses 2008 Société Générale trading loss Yasuo Hamanaka caused a loss of about $2.6 billion, over ten years, in unauthorized copper trading on the London Metal Exchange Nick Leeson caused a loss of £827 million for Barings Bank, leading to its collapse Howie Hubler lost $9 billion in one CDS trade for Morgan Stanley, the largest single loss in history References External links UBS trading scandal collected news and commentary at The Financial Times business/kweku-adoboli Kweku Adoboli Special Report: How a rogue trader crashed UBS, Reuters Category:2011 crimes in the United Kingdom Category:2011 in economic history Category:2011 in London Category:2011 scandals Category:Financial scandals Category:Fraudsters Category:Rogue traders Category:UBS Category:September 2011 in Europe