Tears, then a smile, as ‘rogue trader’ is charged with three-year fraud

Adoboli appears in court accused of crimes dating back to 2008 as details emerge of interrogation by bosses that led to arrest

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The Independent Online

The man at the heart of the rogue trading scandal that has plunged Swiss investment banking giant UBS into turmoil wept yesterday as he faced fraud charges in the largest case of its kind to hit the Square Mile.

Kweku Adoboli, who had been in custody since his arrest in the early hours of Thursday, was charged over his alleged role in causing £1.3bn losses through unauthorised trading which it emerged dated back to 2008.

Sue Patten, head of the Crown Prosecution Service's central fraud group, yesterday said its lawyers had authorised the City of London police to charge Mr Adoboli, 31, with "fraud by abuse of position and false accounting". Hours later, he was in the dock at the City of London magistrates' court, the first time he has been seen in public since he was led from UBS's offices in Liverpool Street.

Mr Adoboli broke down as the three charges against him were read out during a 15-minute hearing before the packed magistrates' court yesterday afternoon. The trader, wearing a pale blue V-neck jumper and an open-necked white shirt, was handed a tissue by a court clerk to wipe away tears as he was confronted with the allegations against him. He later smiled for cameras as he was led handcuffed from a court entrance to a waiting prison van.

The court heard that the claims of fraud against Mr Adoboli, the privately educated son of a Ghanaian former United Nations official, date back to October 2008, when he is accused of changing UBS records to conceal a transaction involving an Exchange Traded Fund, the complex and controversial financial instrument in which the trader had become a specialist. The two other charges – one of fraud and another of false accounting – cover a period between January this year and his arrest in his office at 3.30am on Thursday. David Levy, prosecuting, said the allegation was that Mr Adoboli had involved himself with trades which were highly dangerous for the bank.

Lawyers for Mr Adoboli, including Michael Kaplan, a partner at Kingsley Napier who had previously represented Nick Leeson, did not apply for bail and he was remanded in custody until next Thursday. The chaotic events leading up to star trader's arrest were further revealed when it emerged that he had approached his superiors to reveal his losses on Wednesday afternoon.They questioned him for hours before calling in City police at 1am. He was taken to Bishopsgate police station. Mr Adoboli joined UBS in London as a trainee in 2006 and graduated on the European Equity Trading, Delta One desk, which specialises in trading complex derivatives.

The Delta One desk, which investment banks have focused on bulking up in recent years, is no stranger to controversy, as it was also where Jerome Kerviel carried out his rogue trading, which left Société Générale nursing €4.9bn in losses in 2008.

Confusion continued to reign over the nature of Mr Adoboli's alleged fraud. Rumours had swept the market on the previous day that it was related to a plunge in the value of the Swiss Franc last week. It now appears the investigation centres on a series of trades covering several years.

UBS, which called in law firm Herbert Smith to advise on the investigation yesterday, had pledged to reveal the mechanics of the trades in question and the details of Mr Adoboli's actions in the run up to his arrest.

It was still formulating its response last night, saying it had been caught up in legal red tape, declining to elaborate on the terse statement that had informed the market it had fallen victim to unauthorised trading the previous morning.

The unauthorised trade is likely to send the bank crashing to a third quarter loss, although it is expected to be profitable in the full year. Experts believe it will wipe out any bonuses for the investment bankers in 2011.

Talk emerged yesterday that the bank would also move to restructure its operations and heavily cut jobs in its investment banking division. This comes only weeks after it announced it was to cut 3,500 jobs, many of which are be based in London.

The bank has come under increasing pressure at home to split off its investment banking operations in the wake of the scandal. The Financial Services Authority yesterday deactivated Mr Adoboli's status on its register. The regulator is preparing to start and investigation, alongside the Swiss regulator, into the case.

Beleaguered bank 'could still pay bonuses'

The mood was sombre in UBS's London offices as investment bankers came to terms with the news that the £1.3bn losses could leave them without a bonus and possibly cost them their jobs.

The announcement of the fraud had been met with anger on Thursday, as traders said that two years of progress, after the bank had struggled during the credit crunch, had been thrown away.

Yesterday, however, reality set in amid rumours that UBS would restructure its investment arm, weeks after announcing thousands of job cuts in the division. A trader who regularly speaks to counterparts at the Swiss bank said: "Basically everyone knows they're getting zero bonus now. It's very sombre over there."

A UBS insider said that no decisions on bonuses had been taken and, as the bank was almost certain to post a full-year profit despite suffering losses in the third quarter, some parts of it could still receive a bonus. "The Delta One desk [where Adoboli worked] is unlikely to get anything," the source added.

The case is likely to be the first major test of clawback rules put in place for investment banking bonuses. Provisions have been introduced that mean compensation will be deferred and paid only in the case of ongoing good performance. Contracts for staff at the investment banking group include clawback provisions but UBS would not comment yesterday on whether this case would activate them.

Earlier this year, Sir Win Bischoff, chairman of retail bank Lloyds, said it was considering clawbacks after the payment protection insurance scandal.