Great frauds in history: rogue trader Kweku Adoboli’s £1.4bn loss

Kweku Adoboli's risky trading and his desperate attempts to cover it up wiped £2.7bn off UBS’s market capitalisation.

Kweku Adoboli was born in Tema, Ghana, in 1980, the son of a United Nations diplomat. After spending time in various countries, he moved to the UK with his family in 1991. He studied at Ackworth School in Yorkshire, then did a degree in e-commerce and digital business studies at the University of Nottingham, graduating in 2003. He then got a job at investment bank UBS, starting in an administrative back-office job before moving to a senior role on the bank’s trading team on the desk dealing with exchange-traded funds.

What was the scam?

As well as executing client orders, Adoboli’s team was also allowed to risk the bank’s own money on positions. However, Adoboli began making bets that far exceeded his risk limits, exploiting holes in the system to cover up the amount of risk he was taking, as well as the money that he was losing. He booked fictitious trades in the opposite direction to the positions that he was taking, giving the false impression that he was hedged (that is, that the fictitious trades would offset any profits or losses on his real trades).

What happened next?

Initially, Adoboli’s trades worked, making net profits of $40m in 2009 and 2010. However, in the market turbulence of the summer of 2010, he sustained huge losses that at one point stood at £7.5bn. Although he managed to claw back some of the money, it became clear that the remaining losses would be too large to hide. Facing an investigation from the bank, he confessed what he had done in September 2011 and was arrested. He had racked up the largest unauthorised trading losses in British history. Despite arguing that UBS was aware of his acitivities, Adoboli was convicted of fraud and sentenced to seven years in jail. 

Lessons for investors

Adoboli’s losses ran to about £1.4bn, and news of the fraud wiped £2.7bn off UBS’s market capitalisation. Its share price still hasn’t fully recovered, suggesting that fraud can sometimes be a symptom of poor underlying management. Adoboli claimed that most of his losses stemmed from being talked into reversing a short position prematurely by the rest of his team, but he also lost large sums of money through his personal spread-betting activities and, despite a six-figure salary, was dependent on payday loans. Making large risky bets while running up debt is rarely a good idea. Doing it with your firm’s money without its knowledge, even less so.

Recommended

Iris Apfel: an inspiration to young fashionistas
People

Iris Apfel: an inspiration to young fashionistas

Iris Apfel made her name as a high-society interior designer before a show at the New York Met turned her into a fashion influencer. At 100 years old,…
19 Sep 2021
Warsaw and Stockholm: the unexpected new threats to the City of London
UK stockmarkets

Warsaw and Stockholm: the unexpected new threats to the City of London

London has seen off challenges from Frankfurt and Paris, but two other booming financial centres are a bigger threat, says Matthew Lynn.
19 Sep 2021
The charts that matter: more pain for goldbugs
Economy

The charts that matter: more pain for goldbugs

Gold investors saw more disappointment this week as the yellow metal took a tumble. Here’s what’s happened to the charts that matter most to the globa…
18 Sep 2021
The new social-care levy: an unfair tax that protects the “assetocracy”
National Insurance

The new social-care levy: an unfair tax that protects the “assetocracy”

The government’s regressive social-care levy will make Britain’s tax system even more complex. Root-and-branch reform is long overdue.
18 Sep 2021

Most Popular

The times may be changing, but don’t change how you invest
Small cap stocks

The times may be changing, but don’t change how you invest

We are living in strange times. But the basics of investing remain the same: buy fairly-priced stocks that can provide an income. And there are few be…
13 Sep 2021
Two shipping funds to buy for steady income
Investment trusts

Two shipping funds to buy for steady income

Returns from owning ships are volatile, but these two investment trusts are trying to make the sector less risky.
7 Sep 2021
Should investors be worried about stagflation?
US Economy

Should investors be worried about stagflation?

The latest US employment data has raised the ugly spectre of “stagflation” – weak growth and high inflation. John Stepek looks at what’s going on and …
6 Sep 2021