Ex-UBS trader "obfuscated" accounts for weeks, court hears

LONDON (Reuters) - Former UBS trader Kweku Adoboli used "obfuscation" to deflect weeks of questions from the bank's accountants about why his trading books did not balance, allowing him to keep making risky unauthorized deals, a London court heard on Tuesday.

Adoboli, 32, was arrested at UBS's London offices on September 15, 2011. He is on trial at Southwark Crown Court accused of fraud and false accounting that cost the Swiss bank $2.3 billion, charges he denies.

The court heard evidence from William Steward, an accountant who in 2011 was working in the UBS back office and was responsible, among other things, for the financial accounts of the Exchange Traded Funds (ETFs) desk where Adoboli worked.

Steward told the court he had first become aware of problems with that desk's books in early August 2011, when he received a report on the July accounts that showed "breaks", or discrepancies between entries into the accounting systems.

The breaks amounted to $3.573 billion, a sum which Steward said was "unusual but not unknown" in his work as a back office accountant at UBS. He said he had previously seen breaks that large, but they had been resolved.

In this case, however, Steward began asking questions and found that even though he received lengthy explanations from Adoboli over several weeks as to what had gone wrong with the ETFs desk's accounts, he still could not make the books balance.

Among Adoboli's explanations were that some trades had been booked late or not at all because the desk was short-staffed, the market was hectic and he had not had time. The trader said he had used what he presented as a time-saving short-cut, which involved booking some trades with clients as internal trades.

"The explanation we were given was that this was a temporary solution while he was short of time to make the books look balanced, and eventually (he would) put the right trades in," Steward said.

Asked by prosecuting counsel Sasha Wass what he thought about this at the time, Steward said: "It obviously wasn't very impressive, but it made sense."

"I'M CONFUSING MYSELF HERE"

But by August 24, 2011, Steward was still struggling to make sense of the breaks, and he spoke to Adoboli three times on the phone that day to try and get to the bottom of the problem. Recordings of those calls, which lasted more than an hour in total, were played in court on Tuesday.

The conversations were full of acronyms, jargon and complex explanations. At the first attempt to play the first call, judge Brian Keith stopped the tape within minutes, saying he could not understand and therefore jurors might not understand either.

Wass said that was partly her purpose in playing the tape. She said the confusing explanations were evidence of Adoboli's "obfuscation", and that it was not important for the jury to understand the details since these had turned out to be untrue.

She was referring to an email sent by Adoboli to Steward on September 14, 2011, in which the trader said that contrary to what he had been telling Steward until that point, he had been making unauthorized deals and concealing his positions by entering fictitious trades into the books.

Asked whether Adoboli had given any hint, in any of the emails or calls with Steward prior to September 14, that he was booking fake trades with no counterparty, Steward said "no".

"Did you ever suspect that it was the reason why the books didn't balance?" asked Wass. Steward said, "No."

"Was it in fact the reason why the books didn't balance?" she asked. Steward said, "Yes."

The court then returned to the phone calls of August 24. After Steward was given some time to go over the transcripts, take notes, and give the jury a broad explanation of what the conversations were about, the tapes were played in full.

At the end of the second call, Adoboli appears to lose track of what he is trying to say to Steward. "Give me a sec while I just double check this and I'll call you back," Adoboli says. "OK, all right," says Steward. To which Adoboli responds: "Because I'm confusing myself here."

The trial, which is expected to last eight weeks, continues on Wednesday. Steward will continue giving evidence and will be cross-examined by Adoboli's defense team.

(Editing by Mark Heinrich)

Source: http://news.yahoo.com/ex-ubs-trader-obfuscated-accounts-weeks-court-hears-204551230--sector.html

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