LONDON – A senior trader at the Swiss bank UBS was a "master fraudster" who lost his bank $2.3 billion — and risked a $12 billion loss that threatened its very existence — through more than two years of risky deals and deceit, prosecutors said Friday.
Prosecution lawyer Sasha Wass told a British jury that Kweku Adoboli lied to his employer, invented clients and breached the bank's safeguards against high-risk trading between 2008 and 2011.
"He was risking the very existence of the bank by gambling its resources, ultimately for his own benefit," Wass said on the first day of Adoboli's trial in London.
Adoboli, 32, was a senior trader in exchange traded funds, which bundle together investments in a particular market index, when he was arrested in September 2011 after UBS discovered irregularities in its records.
The trader admitted that since 2008 he had amassed huge losses on off-the-book trades — failing, against the rules, to hedge against failure by placing balancing trades — and had covered his trail by falsifying records.
Despite the admission, Adoboli has pleaded not guilty to two counts of fraud and two counts of false accounting. His lawyers will outline his defense case later in the trial.
Wass said Adoboli's fraud wiped $4.5 billion, or 10 percent, off the share price of Switzerland's biggest bank.
She said Adoboli, who earned 360,000 pounds ($585,000) in salary and bonuses in 2010, "faked bookings, he created false accounts and conducted himself as a master fraudster, deliberately and systematically deceiving and defrauding the bank which employed him."
"Like most gamblers, he believed he had the magic touch," Wass said. "Like most gamblers, when he lost he caused chaos and disaster to himself and all of those around him."
The $2.3 billion loss hurt the bank's efforts to restore its image after a Swiss government bailout and a tax evasion investigation in the United States.
Dressed in a gray suit, Adoboli sat on a bench with his lawyers at Southwark Crown Court as an overflowing international press contingent filled the glass-enclosed dock where defendants usually sit.
Wass described Adoboli, the son of a Ghanaian diplomat and the former head boy at an expensive English boarding school, as a reckless gambler who by the summer of 2011 was at risk of losing the bank $12 billion.
She said the missing $2.3 billion had not gone into Adoboli's pocket, but had been lost in his bid to make profits for the bank and be seen as a top trader.
Adoboli was gambling that he would eventually reverse his losses. But, Wass said, in September 2011 "his system crashed like a car hitting a wall at high speed."
She said that as superiors asked more and more questions about his trades on Sept. 14, 2011, Adoboli walked out of his office, saying he had to go to the doctor. Later that day he sent his employers an email admitting his deceit.
In the email, headed "An Explanation of my Trades," he admitted that "trades that you see on the ledger are not trades that I have done with a counterparty as I previously described.
"I used the bookings as a way to suppress the ... losses that I have accrued through off the book trades that I have made," he wrote in the email, which was read out in court.
Adoboli was arrested the next day and spent several months in custody. He is currently on bail.
Prosecutors described Adoboli as a high-flying young banker who began working at UBS in 2003 in the back office, where he became expert in the bank's accounting and control systems. Prosecutors say he later used that knowledge to cover up his fraud. He was promoted to trader in late 2005 and, Wass said, rapidly became "a trusted and admired member of the bank's trading team."
His remuneration rose almost tenfold between 2005 and 2010.
"He was making large profits for the bank — or so they thought," Wass said.
The incident was a major blow to UBS, one of the European banks hardest hit by losses from by the U.S. subprime mortgage market. Chief executive Oswald Gruebel, brought in to help restore the bank's reputation for propriety, resigned after Adoboli was arrested.
If convicted, Adoboli will join a rogue's gallery of traders that includes Jerome Kerviel, who gambled away $6.7 billion at French bank Societe General until he was caught in 2008, and Nick Leeson, who made so many unauthorized trades that it caused the collapse of Barings Bank in 1995.
Wass told the jury they would hear discussion of terms such as short futures and exchange traded funds in the course of the eight-week trial. But she said judging Adoboli's actions did not depend on an understanding of complex financial instruments.
"This case is about breaking rules, covering up and lying," she said.
Jill Lawless can be reached at http://Twitter.com/JillLawless