How did Kweku Adoboli do it and how did his big bets remain undetected for so long?

HOW did he do it and how did his big bets remain undetected for so long? These were the questions at the centre of the trial last week against Kweku Adoboli, the former trader at UBS, who is accused of losing the bank $2.3 billion through illicit trading activities. He is charged with two counts of fraud and two counts of false accounting.

When Mr Adoboli was arrested on September 14th 2011, he had run up an exposure to equity futures of $8.75 billion, according to Ron Greenidge, Mr Adoboli’s boss until April 2011 and one of the witnesses at the trial. In taking those positions, Mr Adoboli used the bank’s own money, a practice known as proprietary trading.

To hide his big bets, Mr Adoboli booked fake trades, which offset the exposure he had created. Since his trades appeared covered, others working at the bank were unaware of the risk Mr Adoboli was taking on, Mr Greenidge told the court.

On the day of his arrest, Mr Greenidge and Paul Geradine, then a compliance officer at the bank, looked into how Mr Adoboli was able to run up such large positions without sounding alarm bells. The fake trades had been booked using extended settlement dates, which meant “no one would question the trades,” Mr Greenidge explained.

At some point Mr Adoboli used fake trades no longer to hide exposure, but the real losses he had run up. In one month they reached almost $2 billion, according to John DiBacco, his subsequent boss, who also took the stand.

In June 2011 Mr Adoboli began escalating his risks. He believed the market would fall in early July in the wake of the Greek parliamentary vote on austerity measures and the release of some economic indicators in America. But the market rose, causing Mr Adoboli to lose money.

Mr Adoboli then expected the market to rise again, which it did, Mr Greenidge told the court. But Mr Adoboli failed to close his position when he had the opportunity. Then the market dropped again, causing him to incur further losses, which he again hid.

Mr Adoboli’s defence, led by Charles Sherrard, claimed management had given mixed signals to traders, and that risk limits were not only high but regarded as flexible. According to Mr Sherrard, a culture of taking greater risks in the hope of generating higher profits had developed after the arrival of Yassine Bouhara, then one of the co-heads of global equities at UBS. “Throughout 2009 and 2011 this method of trading was endemic within the bank,” Mr Sherrard said.

Mr DiBacco, who had moved from UBS’s office in New York to London to take over Mr Greenidge’s position in April 2011, said in a statement in November of that year he was “surprised” by the large positions taken by traders at the bank. Yet Mr DiBacco doubled the risk limits previously imposed under Mr Greenidge to $100m for intra-day trading and $50m for overnight.

Both Mr Greenidge and Mr DiBacco no longer work for UBS, the court heard. The bank dismissed Mr Greenidge for gross misconduct after Mr Adoboli’s alleged illicit activities were uncovered, putting an end to his 24-year career at the bank. Mr DiBacco was invited to resign, but refused. UBS then “terminated” his position at the bank, after 13 years.

Tension reached a peak in the courtroom on September 20th as Mr Greenidge fell ill and almost collapsed in the witness stand. He was excused for a break before returning for further questioning. The same day Mr Adoboli broke down in tears, as glowing appraisals he had received from his managers while working at UBS were read out to the court. The trial continues on Tuesday.

You can find our coverage of the first, second and third day of the trial here,here and here.

