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LONDON (Reuters) - "Naked gambling" by UBS trader Kweku Adoboli nearly brought down the massive Swiss bank as he wagered up to $12 billion, cooked the books and lied to bosses until his "pyramid of fraud" collapsed, a prosecutor told a London court on Friday.
Adoboli, the 32-year-old son of a U.N. diplomat from Ghana, is on trial by jury accused of fraud and false accounting that in the end cost UBS $2.3 billion. He has pleaded not guilty.
Opening the case against him, prosecuting lawyer Sasha Wass said Adoboli's reckless and unhedged investments had been concealed by fictitious positions entered into UBS systems.
"At one stage, Mr. Adoboli was in danger of losing the bank nearly $12 billion of unhedged investments," she said, before concluding: "He was a gamble or two away from destroying Switzerland's largest bank for his own benefit."
Losses in the double-digit billions could have been fatal to UBS at a time when it was trying to recover from previous colossal losses during the financial crisis of 2008.
Wass said Adoboli's motives were to increase his annual bonus, his status within the bank, his job prospects and his ego. She said his fraudulent deals had wiped 10 percent, or about $4.5 billion, off the Swiss bank's share price.
"Like most gamblers, he believed he had the magic touch. Like most gamblers, when he lost, he caused chaos and disaster to himself and to all of those around him," Wass told the jury.
"He was risking the very existence of the bank by gambling its resources, ultimately for his own benefit. In effect, Mr. Adoboli had ceased to act as a professional investment banker and had begun to approach his work as a naked gambler.
"He had become what is sometimes referred to as a rogue trader."
Wearing a grey suit and a purple tie, Adoboli sat on a bench alongside his lawyers at the back of the well-worn courtroom, in a scene that could hardly have been more different from life on a sleek financial trading desk at a major bank.
Following British legal tradition the judge and lawyers wore white wigs and long robes. Telephones, cameras and recording devices were not allowed, and evidence was contained in huge piles of old-fashioned, lever-arch files bulging with paperwork.
The court heard of his international background, as the son of a U.N. diplomat; he had been educated at a private school in Britain where he was head boy, an early stamp of talent and leadership skills. He graduated from Nottingham University with a degree in e-commerce and digital business studies.
After a summer internship at UBS in 2002, when he was still a student, Adoboli had joined the bank in 2003 in the Operations Department, or back office, of the investment banking arm.
He moved to a front-office role as a trader in the Equities Department in December 2005 and nine months later was promoted to the Exchange Traded Funds (ETFs) desk, where he worked until his career abruptly ended in his arrest on September 15, 2011.
ETFs are financial instruments that allow holders to track indices rather than buying the underlying securities outright. They are a way for investors to gain exposure to markets that are illiquid or otherwise hard to buy into.
Wass said that Adoboli had been a respected trader who appeared set for a stellar career. His total pay had risen from 36,000 pounds in 2006 to 10 times that amount in 2010.
But she said that from 2008, when he lost $400,000 on a legitimate trade and concealed that loss by booking a false trade against it, he got into the habit of carrying out unauthorized trades masked by fictitious positions.
"In short," Wass said, "The three critical controls of risk are: trading limits, hedging and accurate and timely recording of trades. Sensible rules. Mr. Adoboli broke all three."
Anticipating a defense case that may question the bank's control systems, she said Adoboli had lied to ensure managers were unable to stop his actions earlier: "They respected him and he abused their trust to cheat them for his own eventual gain," she said. "There is no system in the world that can stop a dishonest person in a position of trust abusing that trust."
The illicit trades had at first earned money for the bank, but Wass said that like a gambler lulled into a false sense of security by an early win, Adoboli got carried away and exposed the bank to ever greater risks and eventually to "colossal" losses.
On September 14, 2011, William Steward, a company accountant, repeatedly queried some of his trades. Wass said Adoboli knew then that he had "reached the end of the track and was about to hit the buffers".
Adoboli left the office, saying that he had gone to visit a doctor, and sent Steward an email entitled "An explanation of my trades" in which he owned up to falsifying records.
"I am deeply sorry to have left this mess for everyone and to have put my bank and my colleagues at risk," Adoboli said in what Wass described as "the bombshell email".
Later that day, Adoboli returned to UBS offices for a series of meetings with managers. He remained there until the middle of the night, when police came to arrest him. He remained in custody until June 8, when he was freed on bail.
The episode knocked back UBS after it had been rescued by the Swiss government during the financial crisis. It led to a management shake-up, a change of strategy, a tightening of internal controls and a reduced 2011 bonus round for some staff.
Editing by David Stamp and Alastair Macdonald