BBC NEWS Americas Africa Europe Middle East South Asia Asia Pacific Arabic Spanish Russian Chinese Welsh

 You are in: Business
Front Page 
UK Politics 
Market Data 
Your Money 
Business Basics 
Talking Point 
In Depth 

Commonwealth Games 2002

BBC Sport

BBC Weather

Wednesday, 6 February, 2002, 13:24 GMT
Rogue traders of our time
The Sao Paulo Stock Exchange
Under such pressure, slips and swindles are common
By BBC News Online's James Arnold

Ah, the wonders of modern technology.

The increasing computerisation and sophistication of financial markets these days means that losing hundreds of millions of pounds can be as easy as pressing a button.

Little wonder, then that rogue traders - whether honest blunderers or outright fraudsters - seem to have been cropping up ever more frequently of late.

And as markets have become increasingly nervous and dangerous places in the past few months, the chances of yet more slips or swindles look high.

Leeson leads the way

Unsurprisingly, dodgy dealing on the financial markets seems to attract column inches in direct proportion to the amounts of money involved.

Nick Leeson
Nick Leeson: The original rogue trader
Over the past few years, there have been only three cases on a scale to rival this week's suspected fraud at Allied Irish Banks.

The most famous - and the one most often referred to in coverage of AIB - was the case of Nick Leeson, jailed for fraud following the collapse of Barings Bank in 1995.

He went into the red by a whopping 850m ($1.2bn) by trading on Asian markets, after what he claimed was a well-intentioned attempt to cover up losses in a client's account.

Metals and make-up

Less well-known, but financially even bigger was the 1.3bn blown away by Yasuo Hamanaka, a metals trader at Japanese conglomerate Sumitomo.

Peter Young
Mr Young was not fit to stand trial...

Mr Hamanaka, known as Mr Five Percent on account of his share of the world copper market, was jailed for eight years in 1996 after admitting to a 10-year career of unauthorised dealing.

Smaller but spicier was the case of Peter Young, a fund manager at City bank Morgan Grenfell, later acquired by Deutsche Bank.

In 1996, Mr Young was revealed to have bilked 220m from the funds he ran, thanks to a series of unauthorised investments he concealed.

The case returned to the headlines when Mr Young appeared at City of London Magistrates' Court wearing a woman's jumper and dress - and was eventually found unfit to stand trial.

Smaller potatoes

But for the most part, dodgy dealing is a more mundane affair - a few million here, a few million there.

There is hardly a major City name that has not been hit by some sort of trading scandal in the past few years, and most sail through unscathed.

Yasuo Hamanaka
... while Mr Five Percent got eight years

In 2000, for example, NatWest was slapped with a six-figure fine by City watchdogs, after admitting that two of its traders had run up losses of 90.5m.

In the same year, commodities broker Peter Leonard brought down his employers, the Muirpace group, after costing it 32m in trading losses.

And John Ho Park did the same for Griffin Trading, losing 6.2m in a day's trading.

Last year, Merrill Lynch sacked two senior executives for failing to supervise a currency dealer who diverted some 7m in profits to favoured clients.

And so on and so forth.

To err is human...

Even more common, but even more rarely reported, are the cock-ups.

Since the average dealer now sits at a desk straight out of the Space Shuttle - and in many cases is relatively inexperienced and working under considerable pressure - mistakes are inevitable.

In May last year, London's FTSE 100 index dropped by more than 2%, after a trader typed 300m, instead of 30m, while selling a parcel of shares.

In 1998, in the biggest incident of its kind ever, a Salomon Brothers trader mistakenly sold 850m-worth of French government bonds, when he carelessly leaned on his keyboard.

And at the end of 2001, shares in Exodus, a bankrupt internet firm, jumped by 59,000% when a rogue trader accidentally bid $100 for its shares, at a time when its value was 17 cents.

... and increasingly common

All these cases rarely cause the collapse of a firm.

The Wall Street Crash of 1929
Turbulent times breed fraud and failures

Even Sumitomo, worst hit of them all, survived.

But the bad news is that such incidents could become even more common.

Times of crisis or uncertainty are fertile breeding grounds for fraud and cock-ups: nervous traders make mistakes, and loss-making traders become fraudsters to cover their own tracks.

Ever since the spring of 2001, when the long hi-tech boom came to an end, financial markets of all kinds have behaved with alarming volatility.

Losing money, it seems, just keeps on getting easier.

The BBC's Max Foster
"Tighter regulations may not prevent the next rogue trader"
See also:

22 Jun 99 | The Economy
How Leeson broke the bank
Internet links:

The BBC is not responsible for the content of external internet sites

Links to more Business stories are at the foot of the page.

E-mail this story to a friend

Links to more Business stories