Allfirst shareholders' lawsuit is resurrected by Maryland Court of Appeals

Fraud-loss repayment sought from ex-officials

April 09, 2005|By Laura Smitherman | Laura Smitherman,SUN STAFF

A shareholder lawsuit against former executives and officers of Allfirst Financial Inc., where a rogue trader perpetrated one of the largest bank frauds in history, has been resurrected after the Maryland Court of Appeals agreed to hear the case later this year.

The state's highest court agreed late Thursday without comment to review the case, more than two years after it was dismissed by a Baltimore Circuit Court judge.

The $691 million currency trading scandal has been the subject of much litigation, though the only person who has been charged with a crime is the trader, John M. Rusnak, who is in federal prison in West Virginia serving a 7 1/2 -year sentence.

The lawsuit seeks to force company officials including former Chairman Frank P. Bramble and former Chief Executive Officer Susan C. Keating to repay the money lost. Allfirst has since been sold to M&T Bank Corp. of Buffalo, N.Y., and Allfirst's former parent, Allied Irish Banks PLC, retains the right to any monetary recovery in court.

"We're very pleased that the court has decided to revive the case," said Cy Smith, the plaintiff's attorney. "This is an opportunity to assess responsibility for the fourth-largest loss due to bank fraud in the history of the world."

Attorney Mark Gately, who represents former Allfirst Treasurer David Cronin in the matter, said the court's decision doesn't mean that the case will go to trial.

"It means that the Court of Appeals for reasons unknown decided that it would hear the case," he said. "It doesn't by any means indicate what the outcome would be."

Smith, whose client Tomran Inc. of Jarrettsville owned 4,800 American depositary shares in Dublin, Ireland-based Allied Irish, said the directors and senior managers at Allfirst were negligent in their supervision of Rusnak and oversight of the trading department.

Tomran brought the case on behalf of all shareholders in a so-called derivative suit. Baltimore Circuit Judge Albert J. Matricciani Jr. ruled in 2002 that Irish law applies in the case and wouldn't allow shareholders to bring such actions against corporations. Smith said the lower court made a mistake and he argued that New York law should govern and that even under Irish law the case would be allowed to move forward.

Allfirst, Allied Irish and company officials also have been named in a shareholder class action lawsuit alleging securities fraud. In a brief filed yesterday in federal court in New York, the defendants' attorney, Robert Mazur, said those claims "defy reason and should be dismissed."

Mazur argued that the company and its officers were hapless victims of Rusnak's scheme. Rusnak, who pleaded guilty to one count of bank fraud, amassed losses over five years through wrong bets on the value of the U.S. dollar against the Japanese yen and covered up the losses by falsifying documents.

Had company officials known about Rusnak's fraud, Mazur said, "their motivation would have been to terminate his trading immediately so as to minimize Allfirst's losses."

Mazur said Eugene A. Ludwig, a former U.S. comptroller of the currency hired by Allied Irish to investigate the losses, absolved his clients. That same report, which was released publicly, was quoted frequently by the shareholders' class action complaint to buttress their claims. Ludwig said at the time that he didn't consider his inquiry "definitive."

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