LONDON (Reuters) - Former UBS trader Kweku Adoboli told close colleague John Hughes in January 2011 about a secret account he used to hide unauthorised deals, nine months before Adoboli was found out and arrested, a London court heard on Tuesday.
In colourful evidence that gave a flavour of life on the Exchange Traded Funds (ETFs) desk where they then worked, Hughes said he felt stupid for not having reported Adoboli at the time. Hughes was dismissed from UBS as a result of the Adoboli affair.
Adoboli, 32, was arrested on September 15, 2011, at UBS offices. He is now on trial accused of fraud and false accounting that cost the Swiss bank $2.3 billion (1.4 billion pounds). He has pleaded not guilty.
The question of how much others within UBS knew of Adoboli's activities is central to the case. Prosecutors present him as a lone rogue trader, while the defence says UBS was willing to tolerate transgressions as long as they made money for the bank.
Hughes, 30, was asked by prosecutor Sasha Wass why he did not report Adoboli when his colleague had first told him about his illicit account during an electronic chat in January 2011.
"'Cause I'm stupid," Hughes replied.
"I should have reported him. Still to this day I wish I had done. We wouldn't be here today. They'd have fired him."
Hughes told the court he had reported Adoboli to senior trader John Bennie in December 2010 for exceeding the authorised trading limits. Adoboli had been told off as a result and this had soured the relationship between him and Hughes for a time.
"I felt as if I'd stitched him up," Hughes testified, adding later that the unpleasant episode was one of the reasons why he had not reported Adoboli when he heard about the account.
The jury heard evidence earlier from senior UBS manager Phillip Allison who said the bank took risk management very seriously and that controls had been tight.
Hughes conveyed a different impression in his own evidence.
"I would describe the trading limits on the desk as loose ... It was very, very loose," he said, explaining that until new supervisor John DiBacco took charge in the spring of 2011 the trading limits were not written down.
The way it worked, he said, was that previous supervisor Ronald Greenidge would ask the desk at the end of the day what the trading position was, and if he deemed it too risky for the market conditions "he would tell me to take it down".
Wearing a light grey suit, the long-haired Hughes tugged at his fingers and fiddled with his hair while he gave evidence. He used vulgar language several times before hastily apologising to the judge. His eyes darted around the courtroom although he avoided eye contact with Adoboli, who sat quietly at the back of the courtroom in his customary dark suit and tie.
Before he first took the witness stand on Tuesday, Hughes had already emerged as a central character in the drama.
In their questions to other witnesses who appeared last week, Adoboli's lawyers cast Hughes as the more senior and more aggressive of the two traders. They read out excerpts of electronic chats that suggested Hughes had not only known about the account but had encouraged Adoboli to make use of it.
Hughes's own account was different. He said "me and Kweku" were both in charge of the desk and that while he was the more experienced trader, Adoboli had been at UBS longer.
"He had a bigger risk appetite than I had," Hughes said.
"He was very, very good. I was good, but I was a bit of a pain in the arse. I didn't get on with people as well. Kweku was the nice guy."
Hughes was in his early 20s when he joined UBS in 2005. After six weeks' training, he went straight into trading on the ETFs desk. Adoboli, who joined as a graduate trainee and worked in the back office from 2003 to 2005, joined Hughes on the ETFs desk in 2006.
"I kind of fell into trading because I left university with an enormous amount of debt. I was looking for a job that was well paid," Hughes told the court.
Asked about how much vetting and training he had gone through in his early days at the bank, Hughes said he had been given some material about banking regulations to read before he joined but could not recall if he had ever read it.
Quizzed about UBS's own "online accreditation" system, which required traders to complete training modules on various topics including compliance, Hughes said he tended to ignore the email reminders until someone "tapped me on the shoulder" about it.
The trial, which is scheduled to last eight weeks, continues on Thursday, when Hughes will be cross-examined by Adoboli's defence lawyer Charles Sherrard.
Editing by Stephen Powell