Former UBS Trader Banned For Life

A former UBS AG (NYSE:UBS) senior trader has been barred for life from working in the financial industry for manipulating financial data and falsifying reports.

John Hughes, a senior trader on the bank’s synthetic equities desk in London, discovered a scheme on the trading desk whereby traders officially reported profits and losses were manipulated through a “slush fund of money” internally called the “umbrella,” the New York Times reports. This fund obfuscated $2.3 billion in trading losses by a junior trader, Kweku Adoboli, who is serving a seven year sentence in England.

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UBS’ Hughes “felt a bit sick” but got well within a month

Hughes informed regulators that he “felt a bit sick” when he learned of the scheme, but within a month quickly found a level of comfort with the idea, chatting online with Adoboli on how and when to manipulate the financial reports.  Hughes said he knew he was “lying every day.”

Britain’s Financial Conduct Authority, which announced the action against Hughes today, appeared disturbed that when the slush fund and its role in falsifying reports was discovered that Hughes failed to become a whistleblower.  “Approved people should operate to the highest standards of integrity,” Tracey McDermott, the regulator’s director of enforcement and financial crime, was quoted as saying. “This means not only doing the right thing themselves but also challenging, and blowing the whistle on, those who are not. Hughes failed to do so with catastrophic consequences.”

Individual prosecution of bank executives in England

The individual criminal prosecution of bank executives comes after UBS AG (NYSE:UBS) was fined 29.7 million pounds, or about $50 million, in November 2012 for failing to detect or prevent the unauthorized trading.  In a case showing the slippery slope of fraud, while Hughes admitted being aware the “umbrella” slush fund was being used to manipulate financial reports, he claims not to be aware of the rouge trades on the desk.

Hughes was cooperative with regulators and did not hire a lawyer in his defense.  The issue could financially impact Hughes, who is said to have started an online betting web site, BetsofMates.com.  UBS employees fired for gross misconduct are not eligible for deferred compensation.

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Mark Melin is an alternative investment practitioner whose specialty is recognizing a trading program’s strategy and mapping it to a market environment and performance driver. He provides analysis of managed futures investment performance and commentary regarding related managed futures market environment. A portfolio and industry consultant, he was an adjunct instructor in managed futures at Northwestern University / Chicago and has written or edited three books, including High Performance Managed Futures (Wiley 2010) and The Chicago Board of Trade’s Handbook of Futures and Options (McGraw-Hill 2008). Mark was director of the managed futures division at Alaron Trading until they were acquired by Peregrine Financial Group in 2009, where he was a registered associated person (National Futures Association NFA ID#: 0348336). Mark has also worked as a Commodity Trading Advisor himself, trading a short volatility options portfolio across the yield curve, and was an independent consultant to various broker dealers and futures exchanges, including OneChicago, the single stock futures exchange, and the Chicago Board of Trade. He is also Editor, Opalesque Futures Intelligence and Editor, Opalesque Futures Strategies. - Contact: Mmelin(at)valuewalk.com