Allfirst treasurer is called the `key weak link'

Home office's `man in U.S.' was too trusting, report says

Cronin fired

March 15, 2002|By Robert Little | Robert Little,SUN STAFF

David Cronin could have figured John Rusnak out.

Of all the employees at Allfirst Financial Inc., he was the only one with the expertise to understand Rusnak's complex mesh of currency trading and hedging, according to a report released yesterday.

He was Allied Irish Bank's henchman in Baltimore, sent from Ireland to watch over the Allfirst subsidiary. If oversight from Dublin was relaxed, it was partly because Cronin was so highly respected and exceedingly bright.

But the bank "appears to have placed far too much reliance on the structures in place at Allfirst and on the reliability of Mr. Cronin," says the report of Rusnak's alleged fraud, prepared by former federal regulator Eugene A. Ludwig.

Cronin, Allfirst's treasurer, "turned out to be a key weak link in the control process" that should have stopped Rusnak, the report adds. One of its conclusions: "Allfirst should hire a new treasurer."

Cronin was fired yesterday, after the release of a blistering report suggesting that he largely ignored Rusnak's trading operations and missed numerous warnings that something was wrong.

The investigation found no evidence that Cronin knew of the fraud before he reported it to Allied Irish officials last month, and it detailed procedural and managerial breakdowns by numerous Allfirst officials, not just Cronin.

But just as the report blamed Rusnak for perpetrating a fraud that cost Allfirst $691.2 million in surprise losses, it painted Cronin as the bank's crucial weakness in failing to uncover it.

"Allfirst and [Allied Irish] senior management heavily relied upon the Allfirst treasurer, given the treasurer's extensive experience with treasury functions and foreign exchange trading in particular," it said. "In hindsight, this heavy reliance proved misplaced."

Cronin could not be reached for comment. His attorney, Michael Colglazier, questioned the report's findings and suggested they were influenced by "overriding political and institutional objectives."

"If one takes the position that any time fraud is committed those in the chain of command must bear responsibility, David Cronin was in such chain of command," Colglazier said. "If one does not embrace the illogic of such a perspective, then the bank has done a great disservice to a highly principled man whose business acumen and sense of integrity and loyalty has served the bank's interests for many years."

Cronin arrived in Baltimore in 1989, sent by Allied Irish executives to monitor their newly acquired American bank.

While initially perceived as a "home-office spy," he gradually endeared himself to the local employees and executives and earned a reputation as a gentlemanly intellectual, with a friendly disposition and a ready wit.

Cronin "was a great guy, very sincere and straight as an arrow," said one company insider, who asked not to be named. "He was refreshing to be around.

"Baltimore can be such a parochial spot, and he seemed to have such a clear interest in world affairs and what was going on in terms of financial management on a global basis."

Cronin ran a trading operation for Allied Irish before coming to Baltimore, overseeing 40 to 50 traders, including some currency traders. But according to yesterday's report, he took far more interest in managing Allfirst's interest-rate-related businesses.

When concerns arose about the fringe business of trading currency - Rusnak's operation - he did little to investigate them, the report says.

Once in April of 1999, for instance, Cronin was told of several questionable activities surrounding Rusnak's work, including complaints from "back office" bookkeepers who said they could not confirm some of Rusnak's transactions. Cronin ordered new auditing procedures, but those procedures were never implemented and the irregularities continued.

Once when he was warned that Rusnak was bullying and intimidating inexperienced workers responsible for oversight - a tactic, the report alleged, that proved key to Rusnak's deception - Cronin's reaction was similarly tepid.

"Other than calling a meeting and asking that treasury employees treat each other respectfully, it appears that the treasurer took no significant action," the report says.

In May of last year, when officials in Ireland became alarmed by reports of "very heavy foreign exchange trading" at Allfirst, Cronin assured them that no unusual transactions had taken place and that the bank's average daily trading turnover was $159 million.

A month later, Cronin began receiving reports showing that, in fact, Rusnak was "an extraordinarily active trader." On some days the trading turnover reached nearly $4 billion.

While clearly critical of Cronin, the report also notes that Cronin was largely responsible for uncovering Rusnak's fraud. He became suspicious of Rusnak in January and ordered him to cease trading and to settle all of his outstanding trades. The losses were revealed a week later.

And the report suggests that one of Cronin's greatest errors might have been his trust in someone who seemed worthy of trust. Cronin and Rusnak lived in the same neighborhood, attended the same church and served on the same parish school board.

"Mr. Cronin believed that Mr. Rusnak was fundamentally a person of good character," the report says, "which gave [Rusnak] more latitude in accomplishing his fraud without greater scrutiny."

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