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PART A: 1.

0 COMPANY OVERVIEW

UBS

AG (SIX: UBSN, NYSE: UBS) in Basel and Zrich,

is

Swiss It

global financial

services company banking, asset

headquartered

Switzerland.

provides investment

management, and wealth management services for private, corporate, and institutional clients worldwide, as well as retail clients in Switzerland. The name "UBS" was originally an abbreviation for the Union Bank of Switzerland, but it ceased to be a representational abbreviation after the bank's 1998 merger with Swiss Bank Corporation. The company traces its origins to 1854, when the earliest of its predecessor banks was founded. UBS operates in more than 50 countries and has about 65,000 employees globally as of 2012. It is considered the world's second largest manager of private wealth assets, with over CHF2.2 trillion in invested assets, a leading provider of retail banking and commercial banking services in Switzerland. UBS suffered among the largest losses of any European bank during the subprime mortgage crisis and the bank was required to raise large amounts of outside capital. In 2007, the bank received a large capital injection from the Government of Singapore Investment Corporation, which remains one the bank's largest shareholders. The bank also received capital from the Swiss government and through a series of equity offerings in 2007, 2008 and 2009. 2.0 HISTORY OF COMPANY 2.1 SWISS BANK CORPORATION 2.11 ORIGIN OF COMPANY (18541945) UBS, through Swiss Bank Corporation, traces its history to 1854 when six private banking firms in Basel, Switzerland pooled their resources to form the Bankverein, a consortium that acted as an underwriting syndicate for its member banks. In 1871, the Bankverein coordinated with the German Frankfurter Bankverein to form the Basler Bankverein, a jointstock company replacing the original Bankverein consortium. After the new bank started with an initial commitment of CHF30 million and CHF6 million of share capital, it soon experienced growing pains when heavy losses in Germany caused it to suspend its dividend until 1879.

Following the years 1885 and 1886, when the bank merged with the Zrcher Bankverein and acquired the Basler Depositenbank and the Schweizerische Unionbank, it changed its name to Schweizerischer Bankverein (SBC). The English name of the bank was changed to Swiss Bank Corporation in 1917. SBC subsequently experienced a period of growth, which was only interrupted by the onset of World War I, in which the bank lost investments in a number of large industrial companies. By the end of 1918, the bank had recovered and surpassed CHF1 billion in total assets, and grew to 2,000 employees by 1920. The impact of the stock market crash of 1929 and the Great Depression would be severe, particularly as the Swiss franc suffered major devaluation in 1936. The bank would see its assets fall from a 1929 peak of CHF1.6 billion to its 1918 levels of CHF1 billion by 1936. In 1937, SBC adopted its three-keys logo, designed by Warja Honegger-Lavater, symbolizing confidence, security and discretion, and which remains an integral part in the current-day logo of UBS. On the eve of World War II, SBC, like other Swiss banks, was the recipient of large influxes of foreign funds for safekeeping. In 1939, just prior to the outbreak of the war, SBC made the timely decision to open an office in New York City. The office, located in theEquitable Building, was able to begin operations a few weeks after the outbreak of the war and was intended as a safe place to store assets in the case of an invasion. During the war, the banks' traditional business fell off and the Swiss government became their largest clients.

PART B ISSUES: On May 10, 2004, UBS was fined US$100 million by the U.S. Federal Reserve for illegally transferring funds from an account set up by the Federal Reserve at UBS to Iran, Cuba and other countries presently under a U.S. trade embargo. In April 2005, UBS lost the landmark discrimination and sexual

harassment case, Zubulake v. UBS Warburg. The plaintiff, Laura Zubulake, was former institutional equities salesperson at the company's Stamford office. The jury found that her manager, Matthew Chapin, had denied her important accounts and mocked her appearance to co-workers. She claimed several sexist policies in place, such as entertaining clients at strip clubs, made it difficult for women to socialize and foster business contacts with clients. The jury found that UBS had destroyed relevant e-mail evidence after the litigation hold had been in place. UBS was ordered to pay the plaintiff US$9.1 million in compensatory damages (including back pay and professional damage), and US$20.2 million in punitive damages. The Securities and Exchange Board of India (SEBI) alleged that UBS had played a role in the 2004 Black Monday stock market crash which followed the National Democratic Alliance governments defeat in the general elections. SEBI's ruling of May 17, 2005 barred UBS from issuing or renewing participatory notes for a period of one year. The ban was later lifted on appeal, as a result of a government tribunal ruling on September 9, 2005. On October 18, 2005, three African-American employees filed a class action lawsuit against the company in the United States District Court for the Southern District of New York alleging racial discrimination in hiring, promotion and other employment practices. The three plaintiffs in Freddie H. Cook, Sylvester L. Flaming Jr. and Timothy J. Gandy v. UBS Financial Services,

Inc., claim that segregation and discrimination in job assignments and compensation were
widespread and the firm had done nothing to diversify its workforce. The lawsuit also claims offices operating in Largo, Maryland and Flushing, New York were illegally created to serve African-Americans and Asian-Americans respectively, and that the firms management frequently ridiculed the Largo branch office and its staff, referring to it as a diversity office. On April 23, 2007, U.S. District Judge, Peter J. Messitte, granted plaintiff's request to dismiss the class allegations without prejudice. As a result of this dismissal, the case now comprises the

individual claims of three plaintiffs. According toBruno-Manser-Fonds, which campaigns for tropical rainforests, UBS has accepted bribes from timber business in Malaysia.

Case 1: Money Laundering Case (Malaysia) Criminal complaint towards UBS

The Bruno Manser Fund (BMF), a Basel-based rainforest advocacy group, has filed a criminal complaint against UBS with Zurichs public prosecutor over the banks ties with a Malaysian politician who controls logging in Sabah, North Borneo. BMF accuses UBS of having breached its due diligence duties and calls on the Swiss authorities to take criminal action against the bank and those responsible for its relationship with the chief minister of Sabah, Musa Aman. UBS has declined to comment on the accusations. UBS spokesman Yves Kaufmann said the bank complied with the legal requirements in the markets where it operated. Aman has been chief minister of Sabah since 2003 and is the brother of Malaysia's foreign minister, Anifah Aman. He is accused of having laundered over $90 million (SFr86 million) in corruption proceeds through a number of bank accounts with UBS in Hong Kong and Zurich. In April 2012, the Swiss Federal Justice Office confirmed that Switzerland had given legal assistance to Hong Kong authorities over Musa's ties with UBS. Cash payments According to BMF, documents handed in as evidence to the prosecutor's office prove that Michael Chia, a close associate of Aman, organised large cash payments from timber companies with logging interests in Sabah to UBS bank accounts in Hong Kong. From the same accounts, payments were made to Musa Aman's sons in Australia and a senior forestry official from Sabah. BMF is asking the prosecutor to take action in Switzerland under Swiss law against UBS and against UBS employees who have allegedly disregarded their due diligence duties in the Musa Aman case.

"How UBS ought to handle banking relationships with politically exposed persons (PEPs) is stated in the law and the Swiss Financial Market Supervisory Authority's (Finma) regulations. These rules were blatantly disregarded in that no suitable measures were taken for enforcing them, the complaint states. Corruption is one of the main drivers of deforestation in Sabah and Sarawak, the two Malaysian states on the island of Borneo, BMF claims. The complaint was filed on behalf of BMF by Swiss lawyer and compliance expert Monika Roth. The Swiss prosecutors office has opened criminal proceedings against UBS over the banks alleged ties with a Malaysian politician suspected of laundering money derived from corrupt timber logging operations in North Borneo. The case has been opened in response to complaints by the rainforest advocacy group Bruno Manser Fund (BMF), which accuses UBS of having breached its due diligence duties in managing its relationship with Sabahs chief minister, Musa Aman, who controls logging in the region. Aman has been chief minister of Sabah since 2003 and is the brother of Malaysia's foreign minister, Anifah Aman. He is accused of having laundered over $90 million (SFr86 million) of corruptly obtained funds through a number of bank accounts held with UBS in Hong Kong and Zurich. The prosecutors office confirmed on Friday it had opened a criminal investigation into the allegations on August 29, but declined to provide further information. In April 2012, the Swiss Federal Justice Office confirmed that Switzerland had given legal assistance to Hong Kong authorities over Musa Aman's ties with UBS. In a statement provided to swissinfo.ch, UBS said it would cooperate fully with authorities. "UBS applies the highest standards worldwide in the fight against money laundering and corruption. UBS is under an obligation to report the discovery of criminal proceeds and suspicious activities to the relevant anti-money laundering authorities," the statement said. "In this matter, UBS has complied with these obligations already several years ago in several countries, prior to the commencement of various investigations. Ever since, UBS has been fully

cooperating in a number of investigations relating to this matter. We understand that UBS itself has not been the subject of such investigations. According to BMF, an associate of Aman organised large cash payments from timber companies with logging interests in Sabah to UBS bank accounts in Hong Kong. Payments were made from the same accounts to Aman's sons in Australia and a senior forestry official from Sabah. Corruption is one of the main drivers of deforestation in Sabah and Sarawak, the two Malaysian states on the island of Borneo, BMF claims. Case 2: U.S. tax evasion controversy In June 2008, the U.S. Federal Bureau of Investigation made a formal request to travel to Switzerland to probe a multi-million-dollar tax evasion case involving UBS. The investigation had, in part, been prompted by disclosures made by Brad Birkenfeld, a former UBS banker in Switzerland, who testified to the US Department of Justice, the US Securities and Exchange Commission, and the US Internal Revenue Service. In July 2008, a United States Senate panel accused Swiss banks, including UBS and LGT Group, of helping wealthy Americans evade taxes through offshore accounts, and calculated the total cost of this practice as being in excess of US$100 billion annually. The report specifically accused UBS AG and Liechtenstein's LGT Group of allegedly marketing tax-evasion strategies to wealthy Americans. U.S. clients held about 19,000 accounts at UBS, with an estimated US$18 billion to US$20 billion in assets, in Switzerland, according to the findings. In response to the report and the FBI investigation, UBS announced that it would cease providing cross-border private banking services to US-domiciled clients through its non-US regulated units as of July 2008. In November 2008, a U.S. federal grand jury indicted Raoul Weil, Chairman and CEO of UBS Global Wealth Management and Business Banking and member of UBS's Group Executive Board, in connection with the ongoing investigation of UBS's US cross-border business. UBS would eventually cut ties to Raoul Weil in May 2009 and he would face charges after UBS had settled its criminal case with the government. UBS agreed on February 18, 2009 to pay a fine of US$780 million to the U.S. government and entered into a deferred prosecution agreement on charges of conspiring to defraud the United States by impeding the Internal Revenue Service. Of the US$780 million that UBS will pay, US$380 million represents disgorgement of profits from its cross-border business;

the balance represents United States taxes that UBS failed to withhold on the accounts. The figures include interest, penalties and restitution for unpaid taxes. As part of the deal, UBS also settled Securities and Exchange Commission charges of having acted as an unregistered broker/dealer and investment adviser for Americans. The day after settling its criminal case on February 19, 2009, the U.S. government filed a civil suit against UBS to reveal the names of all 52,000 American customers, alleging that the bank and these customers conspired to defraud the IRS and federal government of legitimately owed tax revenue. The Swiss Financial Market Supervisory Authority (FINMA) had given the United States government the identities of, and account information for, certain United States customers of UBSs cross-border business as part of its criminal investigation in 2009. On August 12, 2009, UBS announced a settlement deal that ended its litigation with the IRS. However, this settlement set up a showdown between the U.S. and Swiss governments over the secrecy of Swiss bank accounts. It was not until June 2010 that Swiss lawmakers approved a deal to reveal client data and account details of U.S. clients who were suspected of tax evasion.

Case 3: 2011 UBS rogue trader scandal In early September 2011, the Swiss bank UBS announced that it had lost over 2 billion dollars, as a result of unauthorized trading performed by Kweku Adoboli, a director of the bank's Global Synthetic Equities Trading team in London. On 24 September 2011, Oswald Grbel, the CEO of UBS, resigned "to assume responsibility for the recent unauthorized trading incident", according to a memo to UBS staff. On 5 October Francois Gouws and Yassine Bouhara, the co-heads of Global Equities at UBS, also resigned. It later emerged that UBS had failed to act on a warning issued by its computer system about Adoboli's trading. After two delays requested by Adoboli and a change of legal representation, Adoboli pled not guilty to two counts each of fraud and false accounting on 30 January 2012. He was released on conditional bail after a bail application at Southwark Crown Court on 8th June 2012. The trial, which may last for eight weeks, is scheduled for September 2012.

The trading incident On 15 September 2011, Adoboli was arrested under suspicion of fraud in connection with a loss of a then-estimated US$2 billion, reportedly due to unauthorized trading at the Swiss groups investment bank. A spokesperson from the Swiss banking regulator FINMA referred to the case as one of the biggest ever seen at a Swiss bank. Adoboli had originally retained the law firm of Kingsley Napley, which previously advised Nick Leeson. However, he has now changed his legal representation to Bark & Co and Furnival Chambers, with the fees being paid by legal aid. On 30 January 2012 he pled not guilty to two charges of fraud and two charges of false accounting and faces up to 10 years in prison if convicted of all charges. The loss to UBS was described as "manageable" although it might cause UBS to report a net loss in the following financial quarter. The bank's net earnings for the year ending June 2011 were $6.4 billion with a gross profit of approximately $1.1 billion reported by UBS for the third quarter of 2011. On 15 September, the day of Adoboli's arrest, the price of the stock of UBS closed down 10.8%, while the price of other European bank stocks rose between 36%. It has been reported that Adoboli informed UBS of his unauthorized trades, and then the bank informed the Financial Services Authority and the police. On 16 September, it was announced that City of London Police charged Adoboli with fraud by abuse of position and false accounting. On 18 September 2011, UBS issued a statement which revealed the losses from the alleged unauthorized trading stood at $2.3 billion. The rogue trader reportedly racked up the losses by speculating on EuroStoxx, DAX and S&P 500 indexes. The prosecutor in Adoboli's trial, Sasha Wass, stated that Adoboli "was a gamble or two from destroying Switzerland's largest bank for his own benefit."[19] According to Business Insurance, as in the case of the unauthorized trades by Nick Leeson at the Singapore office of Barings Bank, the Adoboli incident took place at a location away from the bank's central office, where the risk management systems are typically stronger.

The accused trader Kweku Adoboli was born 21 May 1980. His family home was in Tema, Ghana, but he has lived in the UK since 1991 and been described as "British by culture, citizenry and fame. " He graduated from the University of Nottingham, where he studied computer science and management, in 2003. Prior to this, he studied at Ackworth School (a Quaker-run private boarding school near Leeds), where he was Head Boy between 19971998, the year he graduated. According to the Daily Telegraph, shortly before the news of the incident broke, Adoboli had posted on his Facebook account that I need a miracle. Kweku's father, John Adoboli, is a former Ghanaian official at the United Nations. On the day of his son's arrest, he expressed the family's shock and disbelief: "We are all here reading all the materials and all the things being said about him. The family is heartbroken because fraud is not our way of life." Mechanics of the incident According to UBS, Adoboli had disguised the risk of his trades by using "forwardsettling" ETF cash positions. According to the Financial Times, and other sources, Adoboli is suspected to have used the fact that some ETF transactions in Europe are not issued confirmations until after settlement has taken place. The exploitation of this process allows a party in a transaction to receive payment for a trade before the transaction has been confirmed. While the cash proceeds in this scheme cannot be simply retrieved, the seller may still show the cash on their books and possibly use it in further transactions. The process of orchestrating fails to deliver trades may then be used in a carousel of transactions. Unlike in the United States, no data about the volume of fails-to-delivers is available for Europe. CNN and World Finance also stated that some banks have deliberately allowed certain levels of fails-to-deliver, as a method of "dealing with financial stress" so that between accounting cycles the value of securities sold, but not delivered, as well as the value of the cash booked, but not received can be reflected on the books. In October 2011, Sergio Ermotti, the interim CEO of UBS, after the departure of Grbel, admitted that the computer system at UBS had detected the unauthorized trading activities of Adoboli beforehand and had issued a warning, but the bank had failed to act on the warning.

In May 2012, Sergio Ermotti, Group CEO, spoke at the UBS AGM about the changes implemented following the scandal. Ermotti spoke of improved internal monitoring and deficiencies in the financial reporting control system that have been addressed. Ermotti also made reference to employees that have been replaced or had pay docked due to serious mistakes or unreasonable behaviour. The fallout On 24 September 2011 Oswald Grbel, the CEO of UBS resigned "to assume responsibility for the recent unauthorized trading incident", according to a memo to UBS staff. Bloomberg reported UBS to be "in disarray" following the departure of the CEO as a result of the scandal. Ten days later the co-heads of Global Equities at UBS, Francois Gouws and Yassine Bouhara, also resigned. UBS stated that no clients funds were lost as a result of the scandal, but according to The Daily Telegraph, the reputation of UBS could suffer "significant damage, and that the amount lost was almost the same as the savings UBS had planned via the elimination of 3,500 jobs. In mid-November 2011 UBS announced that it would cut back half of the risk-weighted assets in its investment bank over the next five years to reduce risk exposure in the wake of the trading scandal. In June 2012 UBS announced that their ongoing investigation has resolved the weaknesses that made this unauthorized trading possible. Along with their auditors, Ernst & Young Ltd., UBS aim to confirm this with internal control of financial reporting in December 2012. On 26 November 2012, the United Kingdom's financial regulator fined UBS 29.7 million pounds ($47.6 U.S. million) for system and control failings that allowed Kweku Adoboli to cause over $2 billion losses through unauthorized trading in London.

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