KK Ho appeared out of nowhere last year on the Royal Bank ofScotland Group Plc's London trading floor.

He had freshly printed business cards identifying himself as abond salesman. He met with customers and impressed executives ininternal meetings with his talk about rich clients he knew,according to two people familiar with the matter.

Then, just as suddenly, he was out the door several months laterafter bank managers began asking questions about him, questionsthat led to the realization that he wasn't a bond salesman afterall, the people said.

RBS, Britain's biggest publicly owned lender, informedregulators but otherwise kept the matter private, according toanother person familiar with the matter. Some details became publicwhen another bank executive mentioned it in a complaint he filedover an employment dispute.

Ho had been a manager in RBS property services facing a layoffand was given a desk to help him find a new position, according tothe three people, who asked not to be identified because theyweren't authorized to discuss it. Ho wasn't assigned to a team, hadno manager, and wasn't authorized to sell securities or meetclients.

Banks, plagued by probes into interest-rate manipulation andimproper sales of insurance and derivative products, remainvulnerable to compliance failings in unexpected places.Edinburgh-based RBS is trying to reinvent itself as a smaller,retail-focused lender after it received a 45 billion-pound ($69billion) bailout at the height of 2008 financial crisis.

Human Error

“This is a story of basic human error at many levels,” saidJames Carlton, a regulatory lawyer at Fox Williams LLP in London.“It's difficult to understand how those in senior and managementroles both on the trading floor and in human resources could haveoverlooked such a situation.”

Sarah Small, a spokeswoman for the bank in London, said RBSidentified a situation where an employee acted outside his givenrole. “As soon as this was detected, it was fully investigated andappropriate actions taken,” she said in a statement. “We found noregulated activity was performed by this individual.”

A former RBS employee named KK Ho, when reached by telephone,said he wasn't the person at the center of the probe. “That's notme,” he said. He said he worked in strategy and risk at RBS andcouldn't talk about his time there because of a legal agreementwith the bank.

Employment Tribunal

The case came to light in an employment tribunal lawsuit filedby a former RBS trader, Alex Mallinson, who claimed he was unfairlyfired after being accused of manipulating internal pricingsystems.

In a witness statement given to the London tribunal in February,Mallinson described an incident that led the compliance departmentto treat employees more harshly.

The bank “uncovered a situation where an RBS premises (buildingmaintenance) worker had infiltrated the trading floor” and “posedas a senior bond salesman,” he said in the statement. “Once thesituation was uncovered it was dealt with very swiftly, but thefallout was substantial.” The compliance department was reprimandedand the incident “sent a number of very senior managers that hadbeen fooled into thinking this individual was a top salesman, intoa tail-spin,” Mallinson said.

An employment judge ruled in May that while Mallinson wasunfairly treated by the bank, he contributed to his own dismissalby breaching RBS valuation procedures. The judge didn't decide ondamages or mention the salesman.

While the tribunal documents didn't identify the individual,five people familiar with the matter said his name was KK Ho. Hotold traders he had wealthy contacts they could deal with and wasdiscovered when managers began asking who among them was hissupervisor.

RBS reported the incident to the U.K. markets regulator, thenknown as the Financial Services Authority, and no violations wereuncovered, a person familiar with the matter said.

Peter Nielsen, co-chief executive officer for RBS's marketsbusiness, and John Hourican, the bank's former chief executiveofficer for markets and international banking, were both aware ofthe internal probe, one of the people with knowledge of theinvestigation said.

Bankers selling investments or advising on them in the U.K. needto be approved by the FSA, which was replaced by the FinancialConduct Authority this year. Lara Joseph, a spokeswoman for theFCA, declined to comment on the matter.

A LinkedIn page for a man named KK Ho said he worked for RBSfrom December 2003 to April 2012 as a “Real Estate andManufacturing Portfolio Manager.” Before that he was aninfrastructure services and facilities director at property groupJones Lang LaSalle Inc., according to the page.

The page also said that Ho has degrees from University CollegeLondon and is a director of TKS Services.

University College London confirmed in an e-mail that it awardeddegrees in architecture and town planning to a man named Kah KuiHo. A listing on the U.K. companies registry for TKS Serviceidentifies Kah Kui Ho, a 58-year-old Singapore native, as adirector.

When reached by phone, the KK Ho identified on the LinkedIn pagesaid he had no connection to the events described in Mallinson'slawsuit. He now works at London-based Beehive Capital LLP as aprivate equity director and fund manager, according to his LinkedInpage.

Plans for RBS

The British government, which owns 81 percent of RBS, isconsidering breaking up the lender to offload its weaker assets.Stephen Hester, the chief executive officer, who plans to step downin December, has shrunk its balance sheet by 900 billion pounds andcut 41,000 jobs since taking over in 2008.

Operating profit at RBS's core businesses fell 17 percent, to2.46 billion pounds, in the first half of the year, the bankannounced Aug. 2. It named Ross McEwan, the head of its U.K.consumer unit, as new chief executive officer.

Even without regulatory breaches, the incident will have led to“considerable concern and acute embarrassment” for executives andtraders who attended sales meetings with Ho, said Carlton, the FoxWilliams lawyer. “Now is clearly the time for RBS to focus root andbranch on its systems and controls.”

The employment tribunal case is: Mallinson v Royal Bank ofScotland Plc, at the Central London Employment Tribunal, Case No.2203609/2012.

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