Kweku Adoboli Charges Modified to Include Falsification As Case Turns Criminal

Bloomberg reports that the charges against Kweku Adoboli, the ex-UBS AG (USBN) trader accused of costing the company over $2.3 billion from unauthorized trades are now being modified to include falsifying records on ETF trades. Adoboli is scheduled for to enter his plea on November 22, 2011.

UBS AG (USA) (NYSE:UBS)

Adoboli’s Case Goes from Civil to Criminal

The initial allegations are that Kweku Adoboli made huge bets without hedging those positions by making equally large bets that would work to advantage if the initial positions failed. After Adoboli went “all in” and lost, UBS’s risk control systems were alerted. Even if he had “won” his bet, systems still would have been triggered. These initial complaints have been modified to a larger number of transactions in which Adoboli may have committed fraud, some of which date back as early as 2008. This change pushes Adoboli’s case from a civil issue to a criminal matter.

The Saga of Kweku Adoboli

Kweku Adoboli’s ordeal began just a few months ago. UBS questioned on of his trades in August but were satisfied with he explanation, describing it as “good and plausible.” On September 13, the bank questioned Adoboli about trades he made and the losses that resulted. Specifically, he was asked whether he had told the credit-risk department and he had not. The next day, he was asked to “confirm ‘the exact identities of the counterparties’ on the trades.” He did not respond. Instead, Adoboli left the office at lunch and emailed the bank about the positions from his home that afternoon. He returned to the office later that afternoon at the bank’s request. The London police arrested him late that night at UBS’s request after he reported the staggering losses. Two days later, Adoboli was charged with fraud and false accounting. The losses have sent shockwaves through UBS and the markets in general. UBS Chief Executive Oswald J. Grübel resigned in the wake of the Adoboli scandal, followed soon after by Francois Gouws and Yassine Bouhara. UBS said, “Their resignations come as they assume overall responsibility for the effective management of the equities business.”

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