Court Rules to Ban and Fine Former UBS Advisers £1.3m
The Upper Tribunal (Tax and Chancery Chamber) has upheld the Financial Services Authority’s (FSA) decision to fine Sachin Karpe £1.25 million and Laila Karan £75,000 and ban them both from performing any role in regulated financial services for allegedly breaching Principle 1 of the FSA’s Statements of Principles and Code of Conduct for Approved Persons and for not being fit and proper persons.
Karpe served as Desk Head of the Asia II Desk at UBS AG (UBS) international wealth management business in London between January 2006 to January 2008. Meanwhile, Karan worked as a Client Advisor on the Asia II Desk, reporting directly to Karpe, between February 2007 and January 2008. The Asia II Desk provided services to customers resident in India, or of Indian origin.
Under Indian law, Indian persons (whether resident or non-resident in India) are not permitted to invest in Indian securities through a vehicle known as a “Foreign Institutional Investor” (FII) except in particular circumstances. Such vehicles are designed so that non-Indian investors may make investments in Indian securities.
During the relevant period Karpe carried out substantial unauthorised trading, predominantly in FX instruments, with a gross value of billions of pounds across 39 customer accounts. He also allegedly made transfers and loans between client accounts without proper authority in order to hide losses arising from the unauthorised trading.
He directed others (including Karan) to assist him in arranging the transfers and loans, and creating false documentation for the unauthorised trading, the FSA said. His scheme resulted in substantial losses for 21 customers. UBS has since paid compensation to the affected customers in excess of US$42 million.
Karpe also established an investment structure to enable a major (Indian resident) customer (via an investment fund incorporated in Mauritius) to breach Indian law in clear contravention of UBS guidelines. Ultimately, the customer invested over US$250 million in the fund. Karpe deliberately and repeatedly misled compliance in order to accommodate his customer.
Karpe also misled UBS and senior management about paying compensation to a customer using monies from another customer account.
The Tribunal found that: “Mr Karpe induced others serving on his desk to participate in what was an obviously dishonest course of conduct…we infer that the whole motivation was to benefit him indirectly and in the long term by obtaining new clients through his apparent prestige, increasing funds under management and thereby advancing his career and increasing his bonuses.”
The Tribunal accepted that the compliance failings at UBS might have created an environment within which staff could “get away with” misconduct – however, this was no excuse for Karpe’s sustained dishonesty.
Furthermore, Karan did not instigate the unauthorised trading; however, she was aware that unauthorised activity was occurring on some customer accounts for which she was responsible. Between February 2007 and January 2008, rather than escalating this knowledge, Karan assisted Karpe in concealing the unauthorised activity.
In particular, Karan prepared false, handwritten telephone attendance notes purporting to record customer instructions she had received when she had taken no such instructions; routed transactions through a suspense account in order to conceal their origin and destination; signed a number of UBS documents recording the approval of transactions on the accounts without having received instructions or authorisation from the customers; and failed to escalate her knowledge of unauthorised loans between customers.
Ms Karan also failed to escalate her knowledge that Mr Karpe had misled UBS and senior management about paying compensation to a customer using monies from another customer account.
The Tribunal noted that: “We recognise that Ms Karan had been placed in an extremely awkward situation through the manipulation of Mr Karpe. The fact, however, is that over and over again she chose to go along with and, on occasions, to facilitate Mr Karpe’s wrongdoing.”
Tracey McDermott, acting director of enforcement and financial crime, said: “Karpe exploited and abused his position of trust, and persuaded more junior employees to engage in misconduct to assist him. Such behaviour is in breach of his obligations to his employer, his clients and his colleagues as well as to the regulator. It has no place in the financial services industry. We welcome the Tribunal’s confirmation that as well as banning Karpe, a significant financial penalty should also be imposed. This sends a clear message of the consequences of such behaviour.
“Karan sought to categorise herself as a victim in this matter. The Tribunal (as had the FSA) recognised that she did not initiate the misconduct, and was placed in a difficult position by Karpe. However, the findings and the resulting sanctions send a clear message that an approved person must take responsibility for their own actions. Where an approved person is aware that colleagues are engaging in misconduct, we expect them to blow the whistle, not to become involved themselves.
“Those who take on the responsibility of being an approved person should be in no doubt about our commitment to take the strongest action to tackle behaviour which falls below the high standards we expect.”
In November 2009 the FSA fined UBS £8million for systems and controls failures in relation to the unauthorised activity which occurred on the Asia II Desk. In December 2011 Jaspreet Singh Ahuja and in November 2009 Andrew Cumming, both former Asia II Desk client advisers, were banned and fined £150,000 and £35,000 respectively.