AIB keeps lawsuit cost under wraps

Allied Irish Banks (AIB) is keeping under wraps the terms of the settlement it agreed with Citibank to halt the $872m lawsuit it took against the US banking giant over rogue trader John Rusnak’s losses.

The State-owned lender refused to say whether as part of the settlement it will receive full compensation for the huge legal costs it incurred in pursuing the case for almost 13 years in a Manhattan court. 

The litigation will likely be among the costliest ever conducted by an Irish company. 

AIB — then in private hands — first filed the complaint in May 2003. Rusnak has long since completed his sentence.

He was released early from prison in 2008, after serving a conviction for fraud. As a trader, Rusnak had hid mounting losses while employed at AIB’s former US unit, Allfirst Bank in Baltimore.

Revelations of Rusnak’s losses in February 2002 had rocked AIB. 

Rusnak had been employed to trade ‘spot’ and ‘forward’ trades in foreign currencies by Allfirst from 1993. He started to fraudulently hide trading losses around March 1997, by using fake option trades.

Judge Deborah A Batts who had presided over most of the legal back and forth argument over almost 13 years in Manhattan signed off on the agreement between the litigants’ attorneys on Thursday.

AIB legal claims against Citibank, Citibank’s counterclaims against AIB, and Citibank’s third-party claims against M&T Bank “are hereby dismissed on the merits and in their entirety…without award of costs, expenses, or attorneys’ fees to either party”, the judge wrote.

Large groups of US lawyers for AIB and Citibank, and until 2012 for Bank of America, had taken dozens of witness statements from around the world. 

Before the eleventh-hour settlement, the dispute was heading to trial.

In late June 2015, Judge Batts had given AIB the green light to pursue its claim against Citibank. Rusnak had used tactics, including ‘holdover’ trades, to disguise his trading losses from Allfirst’s staff, the judge had ruled.

Rusnak was trading with Citibank as a counterparty, but, from early 2000, Citibank and Allfirst upgraded this agreement to a ‘prime’ counterparty relationship.

“Allfirst alleges that Citibank engaged in a series of sham transactions… that effectively enabled Rusnak to get under his $250m balance sheet limit, convince his back office to confirm various fake transactions, and extend his ongoing fraud,” the judge ruled last summer.

She had ruled “Citibank argues that Rusnak committed fraud in his capacity as Allfirst’s agent”.


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