Essays on rogue traders and collusive rogue trading: Implications of control balance, organizational misbehaviour, and behavioural patterns of group dynamics
Creators: name: Rafeld, Hagen
Publisher: name: Technische Universität Dortmund
Year: 2018
Subjects: subject: Behavioural risk
subject: Collusion
subject: Corporate culture
subject: Misconduct
subject: Organizational misbehaviour theory
subject: Rogue trading
subject: 330
subject: Abgestimmtes Verhalten
subject: Prozessbetrug
subject: Unternehmenskultur
subject: Fallstudiensammlung

description: When analysing great financial disasters of our time, rogue trading and related protagonists come into play immediately. Recent history reveals a series of rogue traders, jeopardizing their employers’ assets and reputation. Rogue trading is a reoccurring phenomenon, gaining immense public attention due to the perceived mismatch between large-scale organizations on the one hand and individual employees bringing these organizations into enormous trouble on the other. It furthermore links to the understanding of fraudsters like rogue traders, embedded in (un)ethical organizational corporate corpuses. Throughout this doctoral dissertation, I use three sources of information for the rogue trading case examination: publicly available investigation reports – prepared and issued by regulatory authorities/supervisors as well as authorized delegates like accounting or law firms engaged by the involved banks – published academic research, and news/media information about fines/regulatory sanctions imposed on affected banks and the prosecution status of individuals involved in the events. I apply a case analysis methodology to all rogue traders, extracting and comparing modus operandi, risk management failures and control weaknesses, as well as early warning signals, before I examine the events from a criminological, organizational, and psy-chological/behavioural sciences perspective. Chapter 1 focusses on Kweku Adoboli at UBS and how he cloned the biggest trading fraud in the history of banking: Jérôme Kerviel’s USD 6.9bn unauthorized trading loss at Société Générale. I conduct a read across, comparing Adoboli and Kerviel with the ‘godfather’ of all rogue traders, Nicholas (‘Nick’) Leeson and his ruin of Barings Bank. Chapter 2 and 3 employ Charles Tittle’s control balance theory (CBT) to explain rogue trading as a special form/subset of white-collar and corporate crime from a criminological per-spective. I use CBT to analyse the anatomy of the Leeson, Kerviel, and Adoboli case, totalling in an accumulated trading loss of USD 10.5bn. I draw conclusions regarding the explanatory power of CBT for rogue trading activities. Chapter 4 analyses instances of unauthorized acting in concert between traders, their su-pervisors, and/or firm’s decision makers and executives, resulting in collusive rogue trading (CRT). I explore organizational misbehaviour (OMB) theory and explain three major CRT events at National Australia Bank (NAB), JPMorgan with its London Whale, and the interest reference rate manipulation/LIBOR scandal through a descriptive model of organiza-tional/structural, individual, and group forces. The model draws conclusions on how banks can set up behavioural risk management and internal control frameworks to mitigate potential CRT. In the concluding chapter 5, I explain one additional major CRT event, the foreign exchange rate manipulation/forex scandal, through an extended descriptive OMB model, in which organizational/structural, individual, and group forces are influenced by behavioural patterns of conscious and unconscious group dynamics: groupthink and defence mechanisms minimizing moral dissonance, i.e. wilful blindness and ethical/moral blindness, morale silence/muteness, and moral neutralization. The model draws conclusions on adverse settings of organizational culture and how banks can prevent collective unethical behaviour.