Q: When you have told us that you were required to obtain independent support for reconciling items, what was the purpose of that? Why do you need independent support?
A: Because it’s UBS’s (NYSE:UBS) practice to obtain independent support.
Q: Do you know the reasoning for that, why?
A: I don’t believe so.
Fair enough. Let’s talk to the boss. See what he knows.
NOTE (added Oct. 10, 3 pm EDT, in response to reader inquiries): The dialog reported above was extracted from depositions given by UBS employees in the legal action surrounding the collapse of Paul Eustace’s Philadelphia Alternative Asset Mgt Co. The questioning, by Man Financial (now MF Global (MF)) counsel Therese Doherty, focused on Eustace’s manipulation of the Oct. 2004 NAV—almost eight months before the fund collapsed with investor losses of around $170 million—and UBS’s failure to confirm information supplied by Eustace.
Q: If it was determined by UBS during the course of this NAV calculation and NAV review that documents that were being relied upon for the reconciling item had been falsified by the investment manager, what did UBS’s policies and procedures require UBS to do?
A: I’m not aware of any policy that specifically raises that specific type of issue.
Q: Well, was there a practice in place at UBS, or that you would have in your position as a group head, if it had come to your attention that documents that were being relied upon for reconciling items had been falsified by the investment manager? What would have been your practice? What action would have been taken if any?
A: I don’t know what I would have done.
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