[ by Howard Haykin ]

Today's testimony recounted from today's UBS Rogue Broker Trial, taking place in London. 

Kweku Adoboli, 32, is on trial for fraud and false accounting for allegedly causing a $2.3 billion trading loss at Zurich-based UBS. Prosecutors say he created an internal account while working on the bank’s ETF desk in London where he parked trading profits to cover future losses. Adoboli has pleaded not guilty and his lawyers have sought to show the jury that others knew about the secret fund.

Testimony from COO Ruwan Weerasekera: Testified that Kweku Adoboli booked tens of thousands of real and fake trades during the summer of 2011 that exposed UBS to losses that may have escalated to $12 billion within weeks.

• He booked those fake futures and ETF trades to make it appear as if he had hedged the risk of his real transactions that far exceeded his limits.
• The potential loss was about $1.5 billion in late June 2011, and soared to $12 billion by early August.
• "Adoboli created the view that the actual trades were hedged trades by booking fictitious trades which offset the real position."
• As many as half of Adoboli's transactions were fabricated.

Short Position.

• During the week , 6/23-30, 2011, Adoboli took a short position and booked fictitious futures hedges that the market would go up.  During that time, the risk to UBS was nearly $1.5 billion.
• Adoboli switched his position 7/1/11 and made investments that counted on the market going up.
• Risk to the bank reached $9.4 billion by 8/2/11, and $12 billion on 8/8.
• Adoboli switched his position again from 8/11 until 9/13, just before the bank discovered discrepancies.
• This time, he booked ETFs instead of futures with the bet the market would go down.
• He extended the settlement dates of the ETFs multiple times.
• Risk hovered around $7 billion during month before Adoboli’s arrest.

Jurors passed notes to the judge asking: 

• Would Adoboli have been fired if he had been able to cover his trades and the markets weren’t as volatile as they were in 2011?
• How is it that the back office didn’t question the large amount of money generated by Adoboli’s desk?

Weerasekera said he believes the trades would have been discovered no matter the size of the losses.

For further details, go to:  Bloomberg, 10/9/12].