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Judge dismisses suit against UBS on risk management practices

December 14
1:33 AM 2013

A lawsuit against UBS AG which alleged that the bank did not tell the truth to its investors about its risk management practices before it disclosed its $2.3 billion trading loss by a "rogue trader" who was convicted last year, Bloomberg reported. UBS is a global financial services firm headquartered in Switzerland that provides wealth management, asset management and investment banking services.

Last year, Kweku Adoboli was convicted of fraud and sentenced to a prison term of seven years for unauthorized trading loss dubbed as the largest in British history. He worked in the London office of UBS.

The report quoted the ruling of US District Judge Katherine Forrest in Manhattan who said, "That a 'rogue trader' was able to cause such a significant loss to UBS is more akin to a claim of mismanagement than of fraud." The decision, which dismissed the suit, was issued today.

The report said a group of investors filed the case against UBS and several of its former executives in June last year. Led by two union pension funds, the investors claimed that the bank lied to investors about the "purportedly robust risk management systems and internal controls" employed in UBS from November 17, 2009 to September 15, 2011, when the lender revealed that a trader working in its investment banking division conducted unauthorized trades which led to losses of over $2.3 billion.

In their complaint, the pension funds said the incident compelled UBS to acknowledge their inadequacy of their internal risk and disclosure controls.

Forrest said the investors were not able to allege facts that suggested that UBS and former executives misled investors knowingly, a requirement in securities fraud cases. She added that there is no requirement in securities laws that banks be prescient or omniscient, the report said.

In her ruling, Forrest also wrote, "They do require that the maker of statements alleged to be false knew of the falsity at the time."

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