Phony trades cost Allfirst $750 million

Baltimore-based banking firm blames `rogue' currency trader

Examiners `confident' bank is sound

Firm suspends 4 other officials pending an internal investigation

February 07, 2002|By William Patalon III | William Patalon III,SUN STAFF

Baltimore-based Allfirst Financial Inc. said yesterday that it had suffered a $750 million loss at the hands of a "rogue" trader who made bad bets in the foreign currency market, then tried to cover his tracks with phony transactions.

The currency trader, identified as John Michael Rusnak, 37, of Mount Washington, has not been charged with any crime in the case.

The U.S. Attorney's Office and the FBI are investigating the matter, authorities said.

Four other Allfirst officials the bank refused to name have been suspended pending the outcome of an internal company investigation.

"Obviously, we are shocked by the amount of this loss," said Allfirst Chairman Frank P. Bramble. "We are aggressively pursuing this investigation."

Allfirst and its Dublin-based parent, Allied Irish Banks PLC, sought immediately to allay fears that Allfirst would be harmed by the huge loss, or that depositors' money was at risk. At least one AIB official was flown into Baltimore overnight to attend yesterday's noon news conference at Allfirst's downtown headquarters.

"Nothing is wrong with the core activities at Allfirst," said Susan C. Keating, Allfirst Financial's president and chief executive.

It is the biggest bank fraud case since 1995, when Nick Leeson was charged in a $1.4 billion trading scandal in Singapore that led to the collapse of Britain's Barings Bank.

Banking examiners from the state and the Federal Reserve Bank of Richmond swept into Allfirst yesterday to review its trading operations, said Mary Louise Preis, Maryland's commissioner of financial regulation.

"We have been working closely with Allfirst ... to get a complete picture of what the situation is now. We think this is a serious situation and a serious matter," Preis said. "We are confident this bank will remain secure and sound and the customer deposits will remain not affected."

Preis said her office had been in contact with Allfirst officials Tuesday evening.

"We have every confidence that Allfirst Bank and its parent are properly dealing with the situation," she said.

Rusnak, who has worked at Allfirst since 1993, lives in the Mount Washington community with his wife and two children. Considered up to now to be an excellent employee, Rusnak was described by colleagues and friends as a family man and community contributor who is active in the Catholic church he attends.

At Allfirst, Rusnak worked as a currency trader, a professional investor who attempts to profit when one currency, such as the dollar, shifts in value against another, such as the European euro or Japanese yen. Rusnak traded currencies for Allfirst customers, and for the bank, with limits on how much risk he was allowed to take on Allfirst's behalf.

Attorney David B. Irwin, hired yesterday to represent Rusnak, said he met with his client in Baltimore. Irwin disputed Allfirst allegations of massive fraud.

"This will all get worked out," Irwin said.

Irwin said he was talking to FBI investigators and federal prosecutors on Rusnak's behalf. He declined to say whether arrangements had been reached for Rusnak to be interviewed by federal authorities.

"There have been these sort of rumors that he's a fugitive," Irwin said. "He's not a fugitive. He's here in town, and he isn't going anywhere."

An official at the U.S. attorney's office in Baltimore, who spoke on condition of anonymity, said investigators have found no indication that Rusnak attempted to steal money.

But even if he took no money, Rusnak could face federal charges in the manipulation of financial records at Allfirst. An assistant U.S. attorney in Baltimore is being assigned to oversee the case, prosecutors said.

"What it looks like is that he made some bad trades and did some things he shouldn't have to hide what he'd done," said the official at the U.S. attorney's office. "It doesn't appear to be an embezzlement case."

Bank officials implied as much yesterday at the news conference in Allfirst's corporate boardroom, where local journalists were competing for chairs with their counterparts from overseas.

"The money has been lost in foreign-exchange transactions - the money has been lost," said Bramble, the Allfirst chairman.

Investors punished AIB's stock. In London, Allied Irish shares plunged 2 euros, or 15 percent, to close at 11.30 euros. In the United States, AIB's American Depositary Receipts fell $3.78 each, closing at $19.77 per ADR.

"I'm not trying to disguise that it's a heavy blow, but what drives our operation is retail and commercial banking, which accounts for 97 percent of our business," AIB's chief executive, Michael Buckley, said yesterday at the banking firm's news conference in Dublin. "I'm resolute in my determination to make back the damage."

Baltimore Sun Articles
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.