The guilty verdict of fraud handed down by the jury against former UBS trader AG trader Kweku Adoboli yesterday at Southwark Crown Court was of little surprise: The only question was going to be how long a sentence he was going to receive for the largest banking-related fraud in U.K. history.
According to the Financial Times, the jury found Adoboli guilty of “two counts of fraud by abuse of position but acquitted him on four counts of false accounting.” He was sentenced to seven years in prison. Adoboli’s illegal trading cost UBS the equivalent of US $2.3 billion, as well as wiping £2.8 billion off the bank’s share price. The losses go beyond money; they're also being blamed in part for the loss of 10 000 jobs at UBS.
Adoboli’s lawyer had an unenviable task, and tried to show that the trader was being made a scapegoat for merely following what his bosses wanted him to do. In his closing arguments the lawyer said the trader was “encouraged by superiors to exceed risk limits as he made record profits from unauthorized trades,”Bloomberg reported. The lawyer said, “You can’t make $6 million profit in one day by not being massively in excess of risk limits… In the end, did he lose control and miscalculate? Yes, he did. He got it wrong and he apologized.”
However, the Crown prosecutor claimed that Adoboli was arrogant and dishonest, and had “fraudulently gambled” away UBS money by creating “fictitious deals” to hide his increasingly reckless trades, both the FT and New York Times reported.
Adoboli's sentence was two years longer than that of Jérôme Kerviel, the Société Générale rogue trader who was convicted of breach of trust, forgery and unauthorized use of computer systems. When his fictitious trades came crashing down five years ago, Société Générale lost an estimated $6.4 billion. But at least Adoboli wasn't ordered to pay back the money he lost, as Kerviel has been ordered to do.
That UBS was unable to detect Adoboli’s activities has led to ongoing investigations by the Financial Services Authority (FSA) and the Swiss Financial Market Supervisory Authority (FINMA). With the trial over, their reports will likely to be published shortly, and I don’t think they will reflect well on the risk management controls at UBS, which have been under scrutiny for years (pdf).
Robert N. Charette is a Contributing Editor to IEEE Spectrum and an acknowledged international authority on information technology and systems risk management. A self-described “risk ecologist,” he is interested in the intersections of business, political, technological, and societal risks. Charette is an award-winning author of multiple books and numerous articles on the subjects of risk management, project and program management, innovation, and entrepreneurship. A Life Senior Member of the IEEE, Charette was a recipient of the IEEE Computer Society’s Golden Core Award in 2008.