Citibank files appeal in AIB rogue trader case

Citibank North America has hit back against AIB in a costly 13-year legal marathon in New York over who was to blame for the losses of rogue trader John Rusnak.

Citibank has mounted an appeal against a court ruling that appeared to favour AIB, according to court documents filed last week.

In a 23-page document, Citibank requested the Manhattan court to reconsider part of its June 30 judgment. Citibank claims that AIB “has not shown by clear and convincing evidence a requisite element of its fraud claims”.

With the first legal complaint filed in the case in May 2003, the high-stakes dispute is in its 13th year.

Large groups of US lawyers for AIB and Citibank, and until 2012 for Bank of America, have taken hundreds of witness statements from around the world, including, it is understood, in Ireland.

Rusnak, who sparked the legal clash between the banks, has long since completed his sentence.

He was released early from prison on good behaviour 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.

In February 2002, AIB revealed that Rusnak was the centre of fraud investigations after hiding $691m losses on his proprietary trading activities in foreign currency markets for the bank.

At the time, his losses were among the largest ever recorded by any so-called rogue trader in the world, and the revelations rocked AIB.

A year later, AIB started a legal suit against Citibank. It was revealed this month that AIB voluntarily dismissed its claims against another defendant, Bank of America North America, in January 2012.

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.

On June 30, Judge Deborah Batts, of the US District Court for the Southern District of New York, who has presided over most of the legal arguments in the dispute between the banks, denied, in part, the defendants’ legal arguments.

That ruling was widely interpreted as favouring AIB and giving it the green light to pursue its claim against Citibank.

Ms Batts outlined the undisputed facts of the case in her June 30 judgment. Rusnak had used other tactics, including “holdover” trades to disguise his trading losses from Allfirst’s staff.

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

The court heard evidence about disputed and undisputed trades between Rusnak and Citibank.

“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 said.

In summarising Citibank’s argument, Ms Batts said on June 30 that “Citibank argues that Rusnak committed fraud in his capacity as Allfirst’s agent”.

A spokeswoman for AIB yesterday said that it had no comment to make on Citibank’s appeal “as it is a legal matter.”