"Naked gambling" by UBS trader Kweku Adoboli nearly brought down the massive Swiss bank as he wagered up to $12-billion (U.S.), cooked the books and lied to bosses until his "pyramid of fraud" collapsed, a prosecutor told a London court on Friday.
Adoboli, the 32-year-old son of a U.N. diplomat from Ghana, is on trial by jury accused of fraud and false accounting that in the end cost UBS $2.3-billion. He has pleaded not guilty.
"He was a gamble or two away from destroying Switzerland's largest bank for his own benefit," counsel Sasha Wass told the jury at the end of her opening statement, which lasted all day.
"In effect, Mr. Adoboli was betting the entire bank on the toss of a coin," she said, describing the defendant as "a greedy banker, out of control and out for himself."
Losses in the double-digit billions could have been fatal to UBS at a time when it was trying to recover from previous colossal losses during the 2008 financial crisis, when the Swiss government had to step in to rescue it.
Ms. Wass said Mr. Adoboli's motives were to increase his annual bonus, his status within the bank, his job prospects and his ego. She said his fraudulent deals had wiped 10 per cent, or about $4.5-billion, off the Zurich-based bank's share price.
"Like most gamblers, he believed he had the magic touch. Like most gamblers, when he lost, he caused chaos and disaster to himself and to all of those around him," Ms. Wass told the jury.
"In effect, Mr. Adoboli had ceased to act as a professional investment banker and had begun to approach his work as a naked gambler. He had become what is sometimes referred to as a rogue trader."
The episode knocked back UBS's recovery effort. It led to a management shakeup, a change of strategy, a tightening of internal controls and a reduced 2011 bonus round for some staff at a firm ranked in the top three dozen banks worldwide.
Ms. Wass urged the jurors not to think of the case in terms of losses suffered by "anonymous groups of rich people." The real losers, she said, were the bank's shareholders and investors who included people "like you and me," such as employees with holdings in pension and trust funds.
Wearing a grey suit and a purple tie, Mr. Adoboli sat on a bench alongside his lawyers at the back of the well-worn courtroom, in a scene that could hardly have been more different from life on a sleek financial trading desk at a major international bank.
Following British legal tradition the judge and lawyers wore white wigs and long robes. Telephones, cameras and recording devices were not allowed, and evidence was gathered in huge piles of old-fashioned, lever-arch files bulging with paperwork.
The court heard that Mr. Adoboli was educated at a British private school where he was head boy, an early stamp of talent and leadership skills. He graduated from Nottingham University with a degree in e-commerce and digital business studies.
After a summer internship at UBS in 2002, when he was still a student, Mr. Adoboli had joined the bank in 2003 in the Operations Department, or back office, of the investment banking arm.
He moved to a front-office role as a trader in the Equities Department in December 2005 and nine months later was promoted to the Exchange Traded Funds (ETFs) desk, where he worked until his career abruptly ended in his arrest on Sept. 15, 2011.
ETFs are financial instruments that allow holders to track indexes rather than buying the underlying securities outright. They are a way for investors to gain exposure to markets that are illiquid or otherwise hard to buy into.
Ms. Wass said that Mr. Adoboli had been a respected trader who appeared set for a stellar career. His total pay had risen from £36,000 pounds in 2006 to 10 times that amount in 2010.
But she said that from 2008, when he lost $400,000 on a legitimate trade and concealed that loss by booking a false trade against it, he got into the habit of carrying out unauthorized trades masked by fictitious positions.
"In short," Ms. Wass said, "The three critical controls of risk are: trading limits, hedging and accurate and timely recording of trades. Sensible rules. Mr. Adoboli broke all three."
Anticipating a defence case that may question the bank's control systems, she said Mr. Adoboli had lied to ensure managers were unable to stop his actions earlier: "They respected him and he abused their trust to cheat them for his own eventual gain," she said. "There is no system in the world that can stop a dishonest person in a position of trust abusing that trust."
The illicit trades had at first earned money for the bank, but Ms. Wass said that like a gambler lulled into a false sense of security by early winnings, Mr. Adoboli got carried away and exposed the bank to ever greater risks.
On Sept. 14, 2011, William Steward, a company accountant, repeatedly queried some of his trades. Ms. Wass said Mr. Adoboli knew then that he had "reached the end of the track and was about to hit the buffers."
Mr. Adoboli left the office, saying that he had gone to visit a doctor, and sent Mr. Steward an e-mail headed "An explanation of my trades" in which he owned up to falsifying records.
"I am deeply sorry to have left this mess for everyone and to have put my bank and my colleagues at risk," Mr. Adoboli said in what Ms. Wass described as "the bombshell e-mail."
Later that day, Mr. Adoboli returned to UBS offices for a series of meetings with managers. He remained there until the middle of the night, when police came to arrest him. He remained in custody until June 8, when he was freed on bail.
The trial continues on Monday. It is scheduled to run on into November.