Over a year ago, in September 2011, authorities arrested a trader at UBS's London offices, accusing him of massive fraud and claiming that he caused the bank to lose $2.3 billion. This week after two months of trial, a jury in the United Kingdom convicted him on two of the British government's six charges.
While the government claimed that this was a "simple" case of securities fraud, the trader argued that the bank was blaming him for losses related to the beginning of the European debt crisis that began snowballing through the markets last summer.
In the words of a senior British prosecutor: "Behind all the technical financial jargon in this case, the question for the jury was whether [the defendant] had acted dishonestly, in causing a loss to the bank of $2.3 billion. He did so, by breaking the rules, covering up and lying. In any business context, his actions amounted to fraud, pure and simple." Despite the prosecutor's confidence, fraud allegations are never simple.
According to the allegations, the trader ignored UBS's internal safeguards and made highly risky trades on a regular basis. While most of these trades successfully earned enormous sums for UBS, the trader allegedly covered up bad trades by setting up separate accounts. When the European markets suddenly turned around in 2011, the trades abruptly went south as well, exposing UBS to as much as $12 billion in losses. The trader claimed that UBS was perfectly happy with his risky trades as long as it was making money - and that the bank only started calling it fraud when it suffered losses.
As this case shows, the truth often comes down to a jury's decision as the "fact finder." In trials like this, everything depends upon the defendant's ability to explain to the jury why complicated and sophisticated trading practices, although risky, are not the same as fraud.
Source: New York Times Dealbook, "Jury Finds Former UBS Trader Guilty of Fraud," Julia Werdigier and Mark Scott, Nov. 20, 2012