-Caveat Lector- From http://www.guardian.co.uk/Print/0,3858,4351322,00.html
}}}>Begin Hunt for rogue trader after £530m bank loss 'Mr Middle America' goes missing as Irish suffer Julian Borger in Baltimore, David Teather in New York and Rosie Cowan in Dublin Thursday February 7, 2002 The Guardian The FBI yesterday launched a manhunt for a rogue trader accused of defrauding a US division of the Allied Irish Bank of £530m. After more than seven years working for the bank, the missing executive, John Rusnak, 37 - described as a churchgoing "Mr Middle America" and a "star foreign exchange trader" - failed to turn up for work in Baltimore, Maryland, on Monday and disappeared from his home. The fraud against Ireland's biggest bank may have been designed to cover huge losses on foreign exchange deals in Asia - amounting to billions of dollars worth of suspicious trades made over the course of the year - and r ecalled the case of Nick Leeson, the man who brought down Barings Bank. But the AIB moved quickly to reassure investors and customers that its future was secure despite the black hole in its accounts. However, it was unclear last night whether Mr Rusnak had stolen the missing $750m or had simply lost it in reckless trading and falsified documentation to cover his mistake. According to bank officials he bought large qua ntities of yen, in effect betting it would rise against the dollar. He is also alleged to have falsified options contracts, which made it look as though he was hedging his bets, when in fact he had gambled hugely on the y en's rise. When the dollar continued to climb against the yen, the losses were enormous. Pat Ryan, AIB's treasurer, who flew from Dublin to Baltimore on Tuesday to deal with the crisis, said: "Fictitious transactions were created to give the illusion of hedging and so make it seem there were small open positi ons, while in fact there was a much bigger open position. "There are many possible motives. Some people do it for profit. Some people do it out of false pride. They are unable to admit mistakes. They cover them up and the whole thing snowballs." A lawyer for Mr Rusnak insisted his client had not been charged, that he was in Maryland and was not on the run. There were unconfirmed reports that he had been seen briefly returning to his home before disappearing again . His lawyer said Mr Rusnak denied fraud. The trader, who has a wife and two young children, had provided few clues to his supposed double life. He is from Pennsylvania and was among the lower to middle-ranking staff at the AIB-owned Allfirst Financial, where he drew a salary of $85,000 a year. He was on the local school board in Baltimore, where he lived in an affluent suburb, and was described as a pillar of the community. He also served on the board of Baltimore Clayworks, a non-profit group supporting cerami c arts. One colleaguesaid he was a "regular, normal guy. You could call him Mr Middle America." Before yesterday, Mr Rusnak had surfaced in the Baltimore Sun in December 1997, in an article portraying him as a market wizard. Working for the First National Bank of Maryland, as the bank was then called, Mr Rusnak was depicted sitting behind a bank of computer screens. "Rusnak slides his chair behind a computer called the Electronic Brokering System and swings into action," the Sun reported. "'Wait a minute,' Rusnak says above a noisy squawkbox on his desk. He punches the keyboard, and in an instant he has exchanged $5m for 8.6m marks with New York's Chase Manhattan Corp. "In just seconds, the value of the dollar falls. Rusnak strikes, buying back the $5m he sold for a quick $5,000 profit. "'If we could do that every time, we would be sitting in our bathrobes smoking a pipe,' said [Matthew] Kozak, First National's vice-president of foreign exchange." It was unclear whether Mr Rusnak had absconded with any money. AIB directors were alerted to the fraud by a routine review several weeks ago, which detected a sharp rise in the volume of Mr Rusnak's trades. An investigato r with the bank's treasury team called the trader at home on Sunday with the allegations. By that night he was no longer taking calls and on Monday his trading chair was empty. Michael Buckley, the AIB's chief executive, described the scam as a "heavy blow" to the bank, though the losses would be written off. He said Mr Rusnak could have acted in collusion with other staff. A number of senior ex ecutives including the vice-president, who is Irish, have been suspended pending investigations. "It is conceivable [Mr Rusnak] got away with something, it's possible he had accomplices who got away with something," Mr Buckley said. Investigators have been sent from the AIB's head office in Dublin and the US attorney's office in Baltimore is also investigating. Mr Buckley said comparisons with Barings were inappropriate: "What Nick Leeson did was cause terminal damage to Barings. An important point I want to make is that even when we write off that £530m we will be making a prof it after tax for 2001 of £245m. This is by no means fatal." The new Nick Leeson? Nick Leeson Age 28 (when Barings fell) Job Derivatives trader in Singapore office of Barings Who were they Britain's oldest merchant bank What he did wrong Carried out a series of secret trades betting wrongly that Tokyo's Nikkei index would rise. Huge losses left a black hole in Barings' accounts resulting in the bank's collapse with £850m of losses. The b ank collapsed overnight John Rusnak Age 37 Job Foreign exchange trader at Allfirst What is Allfirst The US subsidiary of Allied Irish Bank, Ireland's largest bank by market value, which has branches across Britain What he did wrong Tried to hide losses on foreign exchange markets with fictitious counter trades. His losses of $750m (£530m) are unlikely to break the bank Guardian Unlimited © Guardian Newspapers Limited 2002 End<{{{ From http://www.ireland.com/newspaper/ireland/2002/0207/271539706HMLEAD.htm l }}}>Begin AIB claims wider conspiracy behind €850 million fraud Allied Irish Banks claims to have evidence of a wider conspiracy behind the €850 million fraud revealed at its US operation yesterday. Mr Lochlann Quinn, the bank's chairman, said last night that there was "considerable evidence of internal collusion in the fraud". Siobhan Creaton, Mary Canniffe and Brendan McGrath report. Mr Quinn added that there was also some evidence of external collusion and forging of documents. "We have a lot of forged documents purporting to come from certain fax numbers that didn't exist, and we now know this was complicit in the fraud," he told The Irish Times last night. The bank has identified one of the currency dealers at Allfirst, Mr John Rusnak, as the central figure in the fraud. But the FBI in Baltimore, Maryland, said last night there were no arrest warrants out for anyone in relation to the Allfirst case. "There is, as of now, no fugitive in relation to this case," a spokesman said. The FBI is actively seeking Mr Rusnak, according to AIB. It was reported last night that the bank official had made contact with the FBI through his lawyer. The bank has suspended another four executives in its US treasury operation. Mr Quinn and the other directors of AIB will hold a crisis meeting in Dublin today. They will seek an explanation from senior management as to how the $750 million fraud went virtually undetected at the small foreign exchange division in its US subsidiary. "I don't have that answer yet," said Mr Quinn last night. The board will concentrate on "establishing the complexity of what is involved and why the systems did not work and whether some people didn't do their job," Mr Quinn said. The Allfirst treasury operation historically made profits of less tha $10 million. To generate the losses announced yesterday, the dealer would need to have done deals involving some $8 billion to $10 billion, said market sources in Dublin. Mr Michael Buckley, AIB chief executive, yesterday described the fraud as "deliberate and complex". But he struggled to explain the extent of the loss, which relates to deals going back some 12 months. He said the bank had only become aware of the problem in recent weeks and had worked to establish the extent of the loss and would now start to find out the "how and the why". Mr Buckley was only made aware of the problem by the bank's US subsidiary on Monday evening. Mr Quinn heard on Tuesday morning. Market sources said last night that the chairman of Allfirst, Mr Frank Bramble, and the chief executive, Ms Susan Keating, may now come under pressure. Mr Quinn said in an RTÉ interview last night that "when we get all the facts we will decide what to do". He ruled out a "knee-jerk reaction". Mr Bramble will be attending today's board meeting. The fraud revelation had a devastating effect on AIB's share price yesterday. The shares fell by 20 per cent on the Dublin market before eventually closing down almost 17 per cent. Almost 52 million AIB shares traded and more than €2 billion was wiped off the bank's stock market value. AIB believes the fraud will wipe out about 60 per cent of its profits in 2001. The bank was preparing to announce pre-tax profits of €1.4 billion on February 20th. After tax, the loss will show up in its accounts as €596 million, the equivalent of 60 per cent of the after-tax profits of €997 million for last year. The bank was adamant that the fraud would not affect its solvency. It has insisted it is "very comfortable" that $750 million is the total extent of the fraud and that mechanisms have been put in place to limit the losses. But the bank has also warned stockbrokers that $750 million may not represent "100 per cent" of the losses. AIB will now investigate whether it has insurance to cover the cost of this fraud. 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