Bank probe turned over to Ludwig

Ex-comptroller takes helm of Allfirst inquiry

$750 million scandal

Suspended treasurer, Cronin, is described as `devastated'

February 12, 2002|By Bill Atkinson and William Patalon III | Bill Atkinson and William Patalon III,SUN STAFF

Eugene A. Ludwig, a former top U.S. banking regulator, yesterday took over the internal investigation into Allfirst Financial Inc.'s $750 million loss.

Ludwig now heads up what has been promised as an exhaustive review of the Baltimore company's treasury division in the wake of one of the largest-ever financial trading scandals.

The internal investigation was directed its first few days by Pat Ryan, group treasurer of Allfirst's Ireland-based parent who was named interim treasurer of Allfirst Wednesday.

The treasury division had been headed by David M. Cronin, executive vice president, treasurer. Cronin has been identified as one of three top executives suspended by the company. The others are Robert F. Ray, senior vice president of Treasury Funds Management, and Jan N. Palmer, senior vice president of Investment Operations, plus a clerk whose identity could not be learned.

The four employees have been suspended with pay pending the outcome of Ludwig's investigation, which is expected to conclude in about 30 days. Allfirst has not suggested that any of the four were involved in what the bank has described as "sophisticated, well-thought-out fraud."

Sources close to Cronin described him as stunned by the embarrassing events that have tarnished the company and its parent, Dublin-based Allied Irish Banks PLC.

"David is devastated," one person said. Cronin could not be reached for comment.

Allied Irish surprised financial markets last week when it announced that currency trader John M. Rusnak, 37, of Baltimore, lost millions in the foreign exchange markets.

Losses mushroomed as Rusnak made bets that the Japanese yen would rise in value, Allfirst officials said. When the yen plunged, the bank claims, he hid trading losses by creating fictitious options trades and by overriding internal systems designed to detect irregularities.

Rusnak, who was said to be a model employee, did not show up for work Feb. 4 after bank officials began questioning his trades.

Rusnak's attorney, David B. Irwin, has said that his client stole no money and that Allfirst is overstating the money lost in currency trades.

In the face of the debacle, Allied Irish took control of Allfirst's treasury unit with the naming of Ryan as interim treasurer.

Financial forensics

In addition, bank examiners from the state, the Federal Reserve Bank of Richmond and the Central Bank of Ireland have been at Allfirst's headquarters on South Charles Street, performing financial forensics to determine how Rusnak allegedly beat the bank's controls and security system.

"Right now, we are in the period of looking, searching and waiting to see" what transpired, said Mary Louise Preis, Maryland's banking commissioner.

"Our examiners are there to look at the unraveling of what happened and to see if policies and procedures have been violated," Preis said.

Ludwig, a former U.S. comptroller of the currency, was named Sunday to head Allfirst's internal investigation.

He is "actively involved in the investigation at this point," said Philip H. Hosmer, an Allfirst spokesman.

Allfirst has said it became concerned about Rusnak and his trading in late December.

The Financial Times reported yesterday that currency traders in foreign markets became suspicious of Rusnak earlier than did his superiors.

"We just weren't comfortable with him," said an unidentified foreign exchange trader at New York-based Goldman Sachs Group Inc.

Goldman Sachs was so nervous that it refused to conduct business with Rusnak, the paper said.

A spokesman for the New York-based investment banking firm declined to comment

It reported today that an insurance policy held by Allied Irish might cover about $200 million of the $750 million loss.

Cronin, in his capacity as Allfirst's treasurer, ultimately had responsibility for foreign exchange trading operations, according to sources.

He "knew the foreign markets. He grew up in AIB treasury. He has been running the treasury division for a number of years quite successfully," the source said.

"Good guys"

"All three of these guys [Cronin, Palmer and Ray] are veteran treasury bankers and good guys," he said. "They all have a lot of experience and I don't see how it could have happened."

Ray, Allfirst's senior vice president of Treasury Funds Management, was reached at his home in Clarksville, but declined to comment.

"I have no issues one way or another to discuss anything, anyone or whatever," Ray said. "Everything has to go through the company."

Palmer could not be reached for comment.

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