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Posted on 15 September 2011 | 3,453 views

Rogue Trader Causes $2 billion Loss at UBS Bank

Swiss banking giant UBS said Thursday September 15, 2011 that a rogue trader has caused it an estimated loss of ($2 billion), stunning a beleaguered banking industry that has proven vulnerable to unauthorized trades.

Police in London said they arrested a 31-year-old UBS trader, Kweku Adoboli, in the alleged fraud — UBS declined to confirm his name.

A rogue trader is an authorized employee making unauthorized trades on behalf of their employer. It is most often applicable to financial trading, and as such is a term used to describe persons — professional traders — making unapproved financial transactions.

This activity is in the grey area between civil and criminal illegality for the reason that the perpetrator is a legitimate employee of a company or institution, yet enters into transactions on behalf of their employer without permission.

This case immediately evoked memories of Jerome Kerviel, the trader at French bank Societe Generale who secretly gambled away ($6.7 billion). The scale of that fraud rocked the global financial industry and prompted banks to tighten oversight rules to ensure such large sums couldn’t be traded unnoticed.

The debacle that befell Societe Generale, France’s second-largest bank, resulted in Kerviel being convicted in October 2010 on charges of forgery, breach of trust and unauthorized computer use for covering up bets worth nearly ($68 billion) between late 2007 and early 2008. He was ordered to pay the bank back all the money he had lost and banned for life from working in the financial industry.

In other trading debacles, Nick Leeson, a British trader working in Singapore for Barings Bank, made unauthorized futures trades that lost more than ($1 billion) and led to the venerable bank’s collapse in 1995. The infamous case prompted banks worldwide to tighten their internal checks.

Leeson was released from a Singapore jail in 1998 for good behavior after serving 3 1/2 years of a 6 1/2-year sentence. He claimed he did not make a cent from his disastrous trades but Barings’ liquidators sought the return of ($100 million pounds) on any of his earnings relating to Barings.

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