From: Benjamin Wegg-Prosser Sent: Tuesday, March 22, 2011 02:56 PM To: Peter Mandelson Subject: This is extract of judgement - shows how judge does not believe her 1. In any event, so far as volatility is concerned, it seems to me that, albeit in the context of vanilla options, the discussion with Ms Wachner on 9 July 2008 to which I have referred in paragraphs 112 and 114 above was a sufficient warning about the volatility of options close to any rate (whether the strike rate or the knock-in rate) which could lead to their being in the money. Even without that warning, I consider Ms Wachner was an experienced trader (despite all her protestations to the contrary) who understood the risks she was running. 2. It was a constant theme of Ms Wachner's evidence, when confronted with discussions where the choices available to her had essentially either been spelt out by Mr Leslie or Mr Gabb or were obviously known to her anyway from what she said to them, that she was simply following their advice and that they never explained to her the "embedded cost" in rolling over or pushing out options. Ms Wachner made repeated protestations that she did not understand how RKIs worked and that Mr Leslie and Mr Gabb did not explain to her the "embedded cost", in the sense that each new rolled over option sold was riskier than the option whose purchase back was financed by the sale and also the bid-ask spread increased with any purchase which took place when the spot rate was approaching the knock-in rate. 3. Having read the transcripts of the discussions between Ms Wachner and Mr Leslie and Mr Gabb and having had the opportunity to assess Ms Wachner in the witness box, I was unconvinced by her attempt to portray herself as a financial ingenue who simply followed blindly the advice of Mr Leslie and Mr Gabb both in trading RKIs and in the rolling over or pushing out strategy she adopted. Contrary to the impression she sought to create, she was clearly a sophi