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
(Image credit: © Oli Scarff/Getty Images)

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.

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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.

Dr Matthew Partridge

Matthew graduated from the University of Durham in 2004; he then gained an MSc, followed by a PhD at the London School of Economics.

He has previously written for a wide range of publications, including the Guardian and the Economist, and also helped to run a newsletter on terrorism. He has spent time at Lehman Brothers, Citigroup and the consultancy Lombard Street Research.

Matthew is the author of Superinvestors: Lessons from the greatest investors in history, published by Harriman House, which has been translated into several languages. His second book, Investing Explained: The Accessible Guide to Building an Investment Portfolio, is published by Kogan Page.

As senior writer, he writes the shares and politics & economics pages, as well as weekly Blowing It and Great Frauds in History columns He also writes a fortnightly reviews page and trading tips, as well as regular cover stories and multi-page investment focus features.

Follow Matthew on Twitter: @DrMatthewPartri