Here Is What Happened The Last Time A Trader Was Caught Manipulating CDS Marks

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

Just because the market is so stupid it completely ignores what the news of the day is: namely that JPM engaged in what Jacob Zemansky on TV just called criminal behavior when it consistently mismarked its CDS book, as it itself admitted 10 minutes before releasing its earnings today, an act that in itself is nothing short of what Barclays is in the 10th circle of hell for due to blowing up Lieborgate sky high, here is a stark reminder of what happened the last time a trader was caught fudging his CDS book…

From Bloomberg, May 11, 2012:

Ex-UBS Trader Sues After Firing for Mispricing Securities

A former UBS AG (UBSN) trader who was fired after the bank found he worked with a colleague to manipulate trading figures sued for unfair dismissal in London.

Ramon Braga, a trader on the bank’s corporate-credit desk in London, was fired for collusion in the alteration of “marked-to-market” values of credit default swaps by Denis Minayev, UBS staff said at an employment tribunal yesterday.

Minayev, a proprietary trader, “re-marked” Braga’s trading book on 66 occasions, even though he shouldn’t have had the authority to do so, UBS investigator Richard Kennedy said.

If you shift one of those markers, it can give a completely false picture,” employment Judge Graeme Hodgson said at the hearing.

Braga, who is suing for unfair dismissal, was an inexperienced trader who was “thrown in at the deep end,” his lawyer, Amy Sander, said at the hearing. He wasn’t aware of many of the changes Minayev made, she said, and thought his actions were permitted by managers. Braga was also accused by UBS of “procuring a false broker quote,” she said.

UBS is already dealing with the fallout from what the bank said were unauthorized trades by London-based UBS employee Kweku Adoboli, which led to a $2.3 billion loss, regulatory probes and the resignation of Chief Executive Officer Oswald Gruebel. JPMorgan Chase & Co. (JPM) CEO Jamie Dimon said yesterday his New York-based firm suffered a $2 billion loss after a trading unit’s “egregious” failure to manage risks.

Internal Probe

Kennedy, the UBS investigator, said the bank had uncovered the re-marking of Braga’s trades during an internal probe into him and Minayev, who is also no longer at the firm. Asked why a proprietary trader had been able to access Braga’s trading book, Kennedy said Minayev’s role had changed and he was asked not to adjust positions any more.

“Despite his change in role, he hadn’t had his marking privileges removed,” Kennedy said.

Dominik Von Arx, a spokesman for Zurich-based UBS, said Braga “was a junior employee” in the bank’s fixed-income, currency and commodities unit.

He was dismissed for gross misconduct in October 2011 following an investigation into alleged mismarking,” Von Arx said in an e-mailed statement. “UBS has zero tolerance for such behavior.”

During cross-examination of Braga today, UBS lawyer Bruce Carr said Braga had asked a broker friend to send him a quote that justified changes made to his valuation, after a colleague said the price was too high.

‘Unsolicited E-mail’

“You get an entirely unsolicited e-mail that happens to fit” the valuation, Carr said. “That’s quite a coincidence, isn’t it?”

Braga responded that his “dismissal shouldn’t be based on speculation or coincidences.”

The product being re-marked was a credit default swap on European industrial-company bonds, which was illiquid and difficult to value because it was rarely traded.

Lawyers for Braga questioned Paolo Croce, UBS’s European head of rates, at the continuation of the hearing today about the close relationship between proprietary traders such as Minayev, who trade with the bank’s money, and flow traders like Braga, who execute orders on behalf of clients.

“All the other flow traders followed the direction of Mr. Minayev,” Braga’s lawyer said.

Croce said while flow and proprietary traders exchanged information, they weren’t supposed to take instructions on pricing.

Minayev had told Braga, “I need this to move,” according to Croce. “He told him ‘I’m down $9 million today.’”

Hmm: oddly comparable to the e-mails all those traders who engaged in Libor manipulation were saying. And now that we know JPM engaged in at least CDS type of MTM fraud, how long until we find that the firm is just as complicit as Barclays and other BBA constituents when it came to "fixing" that other component of the CDS market: Libor?

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