Rogue trader accused of hiding €800m losses

A rogue currency trader accused of hiding €800m in trading losses at AIB-owned Allfirst Financial was today indicted by a US federal grand jury.

John Rusnak was indicted on charges of bank fraud, false entry in bank records, and aiding and abetting. It followed a four month investigation into trading from 1997 to 2001.

He made an initial appearance before Magistrate Judge Beth Gesner in Baltimore, Maryland, and was released on bail.

Allied Irish Banks, Allfirst’s parent company, has accused Rusnak of covering up huge losses by fabricating purchases of options contracts - which are designed to provide insurance for potential losses on currency purchases - chiefly in Japanese yen.

Rusnak’s lawyers have said he did not personally profit from the deception, but AIB has contended he received hefty bonuses in reward for what appeared to be profitable deals.

The case prompted AIB to hire Eugene Ludwig, a former US Treasury Department banking regulator, to investigate the bank. Ludwig’s report blamed managers at Allfirst for permitting the fraud to take place.

The bank fired six Allfirst managers after the report came out.

AIB has agreed with Irish, US and Maryland regulators to conduct reforms in wake of the fraud.

The scandal has caused officials at the Dublin-based company to consider withdrawing from the US market, depending on how well the Allfirst division rebounds.

A shareholder lawsuit filed in March accused Allfirst and AIB of failing to pick up on indications as early as 1995 that Rusnak was doing something wrong.

AIB, the largest retail bank in Ireland, formed Allfirst in 1999 from the merger of two Maryland financial institutions. The US operation has about 250 branches operating from Virginia to Pennsylvania.

It Is the biggest case of alleged fraudulent bank trading since that of Nick Leeson, a British trader working in Singapore for Barings Bank who made unauthorised futures trades that lost €1bn euro and led to the bank’s collapse in 1995. He served three years in jail.

Leeson’s case prompted banks worldwide to tighten internal checks.