Traders Behaving Badly: UBS "Rogue" Ranks Among Biggest Money-Losers
News that a "rogue" trader in UBS's London office lost $2 billion of the banking giant's money was greeted with the usual shock. How did the person do it? Was the bank asleep at the wheel? Why does this keep happening? Natural questions all -- everyone likes a good caper -- and it will be interesting to see how Kweku Adoboli, a 31-year-old specialist in exchange-traded funds, allegedly pulled it off.
The case is another stain on UBS. The company had to be bailed out during the financial crisis, and its reputation has suffered in recent years after a string of scandals, including getting busted by the U.S. government for helping Americans dodge taxes. Asked one brokerage pro:
"How many times do we have to see huge UBS losses?" said Simon Maughan, head of sales and distribution at MF Global Ltd. in London. "It looks unreformed, unwieldy and ultimately unsustainable. This could be a critical tipping point for UBS's strategy."But is surprise appropriate at this stage? The list of financial company employees who have defrauded their firms in recent years grows longer by the year. Given the size of the loss at UBS, it also seems clear the company had one doozy of a hole in its risk management systems. Indeed, another question that rarely gets answered in such cases is to what extent senior bank managers were at all responsible for the fraud.
As for why such incidents keep happening, greed seems a likely culprit, along with the intense pressure to perform facing traders at major banks. With that in mind, here's a look at five other traders gone rogue in recent years:
Thumbnail from Flickr user Twicepix via Wikimedia Commons, CC 2.0
Start: French toast »
Related:
- Why Scapegoating SocGen "Rogue" Jerome Kerviel Won't Reform Wall Street
- Inside Job: Why the Trial of Galleon Founder Raj Rajaratnam Is a (Necessary) Sideshow
- Galleon Case: Why Rich People Become Insider Traders
- Why Insider Trading Is Here to Stay
- Bernie Madoff's Jailhouse Interview: Banks Were "Complicit"
French toast
In 2008, Société Générale trader Jérôme Kerviel lost $6.7 billion after taking a flyer on European stock index futures. He was later convicted of breach of trust, misusing company computers and forgery and sentenced to five years in prison. A Paris judge also ordered him to repay the entire amount, which if Kerviel lives to a ripe old age amounts to roughly $150 million a year for the rest of his life.
Was Kerviel repentant? Hardly. As he told Der Spiegel last year in protesting his punishment:
I see it as a major injustice. It felt like someone had repeatedly whacked me over the head with a bludgeon -- at first with the five years of imprisonment, and then with the multi-billion euro fine. And the bank has been cleared of all complicity.Next: Sayonara, "Mr. 5 Percent" »
Sayonara, Mr. Five Percent
Yasuo Hamanaka was the top copper trader at Japan's Sumitomo (TYO) in 1996 when he blew $2.6 billion. Known as "Mr. 5 percent" because of the share of the global copper market he supposedly controlled, Hamanaka amassed and hid the losses over roughly a decade. The end came after commodity prices suddenly plunged in the mid-1990s, exposing the extent of Sumitomo's losses. Hamanaka was convicted of forgery and fraud and got eight years in prison.Next: Barings down »
Barings down
Nick Leeson literally brought the house down. A futures trader in Singapore for Barings, the then 28-year-old brought the curtain down on the storied British bank after he lost $1.4 billion in a series of bad derivative bets. Leeson's unauthorized trading started in the early 1990s, but initially he made money. When a massive earthquake in Kobe, Japan, in 1995 sent stock markets tumbling and resulted in large losses for Leeson, he doubled-down with more trades gambling that Tokyo's Nikkei index would rebound quickly. It didn't.
Barings went bust, and Dutch bank ING later bought it -- for a little over a buck. Where is Leeson, who served more than six years in a Singapore slammer, now? On the lecture circuit speaking about risk management and corporate security. He's also writing books, including the aptly titled "Back From the Brink: Coping with Stress."
Next: I confess »
I confess
In July 1995, Daiwa Bank bond trader and former car salesman Toshihide Iguchi wrote a 30-page letter to the company's president fessing up to having lost $1.1 billion over the course of more than a decade while trading U.S. Treasury bonds. In contrast to similar cases, the scandal enveloped numerous other managers at the Japanese firm, resulting in criminal indictments. Daiwa was also barred from operating in the U.S. Five years after the incident, a court ordered 11 current and former board members to pay $775 million in restitution to Daiwa.
Iguchi, who served two years in prison, later moved to the U.S. and became an American citizen. Like Leeson, he also found a second career as a writer. His biggest hit to date: "The Confession."
Next: Hurricane Hunter »
Hurrican hunter
By the time U.S. securities regulators noticed in 2006 that something was awry at Amaranth Advisors, the hedge fund and former head trader Brian Hunter had lost $6.4 billion trading natural gas futures. Amaranth shut down, and a Canadian court ruled Hunter guilty of manipulating gas contracts.
Hunter, who had previously led the gas trading desk at Deutsche Bank (DB), was initially a star performer at Amaranth, generating at least $1 billion in trading profits for the firm -- and upwards of $100 million for him. His greatest success came after betting that gas prices would rise following hurricanes Katrina and Rita in 2005. Hunter tried to repeat the trick the following year, borrowing money to place even bigger bets. But Mother Nature wouldn't cooperate and gas prices fell, resulting in massive losses for Amaranth.