[ By Howard Haykin ] A former UBS AG trader was fired after the bank found he worked with a colleague to manipulate trading figures.  The trader worked on the bank’s corporate-credit desk in London.  So, now he's suing for unfair dismissal.  Let's see how strong of a case he's got. The trader is Ramon Braga, and he was fired for collusion in the alteration of "marked-to-market" values of credit default swaps by Denis Minayev, according to testimony by UBS staff at an employment tribunal yesterday.  Minayev, a proprietary trader, "re-marked" Braga’s trading book on 66 occasions, even though he shouldn’t have had the authority to do so, UBS investigator Richard Kennedy said. The product being re-marked was a credit default swap ("CDS") on European industrial-company bonds - illiquid and difficult to value because it was rarely traded.  This prompted employment judge Graeme Hodgson to say at the hearing, "If you shift one of those markers, it can give a completely false picture." Lawsuit Filed by Braga. Braga's argument was presented by his lawyer, Amy Sander.  she portrayed him as an inexperienced trader "thrown in at the deep end."  That he wasn’t aware of many of the changes Minayev made, and actually thought his actions were permitted by managers.  Braga, Ms. Sander continued, also was unjustly accused by UBS of "procuring a false broker quote." Keep in mind that this case in London is being raised while UBS continues to deal with the enormous fallout from allegedly "unauthorized trades" by London-based UBS employee and "rogue trader," Kweku Adoboli. Mr. Adoboli's trades led to $2.3 billion in losses, regulatory probes and the resignation of CEO Oswald Gruebel.

Across the pond, though dealing with trades also executed in London, is JPMorgan Chase CEO Jamie Dimon, who attributed his bank's recent $2 billion loss to a trading unit’s "egregious" failure to manage risks.

UBS Internal Probe. Kennedy, the UBS investigator, said the bank had uncovered the re-marking of Braga’s trades during an internal probe into him and Minayev, who also is no longer at the firm.  Asked why a proprietary trader had been able to access Braga’s trading book, Kennedy said Minayev’s role had changed and he was asked not to adjust positions any more.  [C-I Note: But at what point in time?  After the 25th remarking?  Hmmm.]   [Yet,]  "Despite his change in role, he hadn’t had his marking privileges removed," Kennedy said. Braga "was a junior employee" in the bank’s fixed-income, currency and commodities unit, who "was dismissed for gross misconduct in October 2011 following an investigation into alleged mismarking," according to a UBS spokesperson, who added, "UBS has zero tolerance for such behavior." Back to the Hearing. During cross-examination of Braga last week, UBS lawyer Bruce Carr said Braga had asked a broker friend to send him a quote that justified changes made to his valuation, after a colleague said the price was too high.  This led lawyer Carr to observe, "You get an entirely unsolicited e-mail that happens to fit” the valuation. "That’s quite a coincidence, isn’t it?"  Braga responded that his "dismissal shouldn’t be based on speculation or coincidences." Lawyers for Braga questioned Paolo Croce, UBS’s European head of rates, at the continuation of the hearing about the close relationship between proprietary traders such as Minayev, who trade with the bank’s money, and flow traders ("agency traders" in the U.S.) like Braga, who execute orders on behalf of clients.  "All the other flow traders followed the direction of Mr. Minayev," Braga’s lawyer said. Croce responded by stating that, while flow and proprietary traders exchanged information, they weren’t supposed to take instructions on pricing.  Minayev had told Braga, "I need this to move," according to Croce. "He told him ‘I’m down $9 million today.’"  Minayev declined to comment when reached by phone. Braga’s lawyers declined to comment outside court or when contacted by e-mail.

[C-I Conclusion. First of all, this account by Bloomberg reads like a melodrama - interesting, somewhat out of sync, and apparently lacking continuity in recital of the facts and flow of the testimony.  Also, I'm frankly puzzled by the scenario - i.e., it would appear that Braga is a passive participant in the matter.  Nowhere is it stated or intimated that he asked Minyev to remark his prices.  Further, it makes no sense, whatsoever, to expect a junior trader to price complex and infrequently traded securities - particularly without having the valuation signed off by a superior.

Until we learn anything further, our impression at this point in time, is to rule in favor of Braga - he was unfairly dismissed and should be rehired and compensated for lost time and out-of-pocket expenses.]

WHAT'S YOUR CALL?

[Bloomberg, 5/11/12]