October 9, 2012 7:30 pm

Jury hears of trader’s ‘fictitious’ moves

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At least half of the many “tens of thousands” of transactions booked by alleged UBS rogue trader Kweku Adoboli were fictitious, a London court has been told.

Ruwan Weerasekera, chief operating officer of securities at UBS Investment Bank who led the internal investigation into the bank’s $2.3bn losses, on Tuesday gave evidence about the probe on Tuesday at Mr Adoboli’s criminal trial.

Mr Weerasekera told a jury at Southwark Crown Court that Mr Adoboli’s trades resulted in UBS being exposed to risk of $12bn last August at a time when the bank believed its risk exposure was only $2m.

“This level of risk taking is completely out of proportion with anything that would have been countenanced,” Mr Weerasekera told the jury.

Prosecutor Sasha Wass QC put it to Mr Weerasekera that his investigation had divided Mr Adoboli’s trading into three distinct phrases between June and September 14 when the losses were discovered.

Between June 23 and June 30, Mr Weerasekera told the court that Mr Adoboli had created a short position betting the markets would fall and his real trades had been “masked with a fictitious long position”. However, markets rallied in that period following the austerity measures adopted by Greece.

Mr Weerasekera talked the jury through a series of graphs which he said showed that the reported risk exposure of UBS on June 24 was $53m whereas the actual risk was in fact $147m.

By June 30 reported risk was $41m but actual risk exposure to UBS had risen to $1.49bn.

Between July 1 and August 10, the court heard Mr Adoboli changed his view of the markets and became more optimistic about them. He masked the true position with fictitious long futures so it would appear to the bank that the position was hedged.

By July 18 the real risk exposure had leapt up to $4.5bn and by August 8 the bank believed its risk was $2m when the risk exposure was in fact $12bn.

Mr Adoboli again switched his position from August 11 this time using fictitious ETFs and extended settlement dates to mask the position believing markets would fall. However the risk exposure to UBS stayed broadly at around $7bn from August 29 until mid-September when the losses were discovered, the court heard.

When the bank eventually closed out the open positions, losses crystallised at $2.3bn.

Mr Weerasekera told the court that he concluded in his inquiry that Mr Adoboli had executed real trades beyond his trading limits exposing the bank to billions of dollars of risk.

In addition he told the court he found transactions that were fictitious in nature. He also found real trades that were booked late or in other ways not consistent with bank procedure that were “masking the reality” of the trades, he told the court.

Mr Adoboli faces two charges of false accounting and two of fraud by abuse of position. He denies the charges. The trial continues.

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