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Wednesday, 5 June, 2002, 20:52 GMT 21:52 UK
AIB trader charged with fraud
John Rusnak and AIB logo
US currency trader John Rusnak has been charged with covering up $691m (474m) of trading losses so that he could boost his own earnings.

He was indicted by a federal grand jury on charges of bank fraud, false entry in bank records and aiding and abetting.

Not only did the defendant's fictitious trades hide his losses, they also appear to generate profits

Thomas M DiBiagio
US Attorney

The indictment followed a four month investigation into trading at Allfirst Financial, a subsidiary of Allied Irish Banks (AIB), from 1997 to 2001.

Prosecutors said the trader did not actually profit from the trading losses, mostly on the Japanese yen.

Big bonuses

But, they said, he entered fictitious options trades into Allfirst's computerised record keeping system to make it appear that the bank was making money.

That meant that he could keep earning bonuses that were tied directly to his trading.
US Attorney Thomas M DiBiagio
The US Attorney says Rusnak was very smart

US Attorney Thomas M DiBiagio said: "As a result, not only did the defendant's fictitious trades hide his losses, they also appear to generate profits".

He said Mr Rusnak earned more than $850,000 in five years - $550,000 of that amount was in bonuses.

Complex and determined

Mr DiBiagio said the trader's knowledge of the bank's oversight process enabled him to get round it.

"He was a very, very smart young man who knew his business," the US Attorney said.

Mr Rusnak faces up to 30 years in prison a $1m fine and five years of probation for each of seven counts.

He was freed following an initial appearance in court.

The $691m losses came to light in February when AIB announced that it had called in the FBI to investigate "a complex and very determined fraud" at its US subsidiary Allfirst.

Report blamed managers

It was the biggest case of alleged fraudulent bank trading since Nick Leeson, a British trader working in Singapore for Barings Bank, made unauthorized trades that lost more than $1bn (830m) and led to the bank's collapse in 1995.

(AIB was the) victim of a complex and sophisticated fraud and these charges endorse that conclusion

Allied Irish Banks

The losses at Allfirst prompted AIB to hire Eugene Ludwig, a former U.S. Treasury Department banking regulator, to investigate the bank.

His report blamed Mr Rusnak as the person primarily responsible for the huge loss.

But it also blamed managers at Allfirst for allowing the deception to take place.

The treasurer, three other senior executives and two middle managers at Allfirst were dismissed in March.

Sophisticated fraud

AIB and Allfirst said they welcomed the decision to indict Mr Rusnak on charges of bank fraud and false entry in bank records.

AIB said it had stated at the outset that it believed it was the "victim of a complex and sophisticated fraud and these charges endorse that conclusion".

AIB is the largest retail bank in the Republic of Ireland.

The company operates has branch networks in Northern Ireland and Britain, and holds a controlling stake in a Polish bank.

AIB formed Allfirst in 1999 from the merger of two Maryland financial institutions.

The U.S. operation has about 250 branches from Virginia to Pennsylvania.

 WATCH/LISTEN
 ON THIS STORY
Christa Delcamp, WJZ TV in Baltimore
"This bank fraud was so sophisticated and so intricate it... took a long time to follow the trail"


AUDIO VIDEO
See also:

16 May 02 | Business
06 Feb 02 | Business
17 Mar 02 | Business
14 Mar 02 | Business
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