- The Washington Times - Thursday, February 7, 2002

A currency trader at Allfirst Financial Inc.'s Baltimore headquarters was accused yesterday of losing $750 million through fraudulent transactions over the past year.br>Allfirst said John Rusnak, a Baltimore resident and seven-year veteran of the company, placed a large number of trades that bet on currency movements, then created phony contracts to offset those trades after they went sour.
The $750 million loss is the sixth-largest "rogue trader" loss since 1987. Already, comparisons are being made between Mr. Rusnak, 37, and Nick Leeson, who caused the collapse of Britain's Barings Bank by concealing $1.4 billion in losses in 1995.
"From our initial investigation, it is clear that the foreign exchange deals were transacted in the normal manner. However, the offsetting currency option contracts were fictitious," Allied Irish Banks PLC, the parent company of Allfirst, said in a statement. Allied Irish said the contracts were entered artificially into Allfirst systems, and went undetected by internal controls designed to prevent such activity.
"The established control procedures in Allfirst Treasury should have identified these fictitious transactions," the company said.
At a press briefing, Allfirst Chairman Frank Bramble said it's unlikely just one employee knew about the losses.
"There was collusion here because it would have been impossible for this individual to have done these transactions without the operations area not doing its job," Mr. Bramble said.
Allfirst employs 6,000 people and has 250 branches in Maryland, Pennsylvania, the District, Virginia and Delaware.
Mr. Rusnak, a father of two who sits on the board of his local church, had been missing since the weekend but is believed to be at his Baltimore home now. He is cooperating with the FBI, his attorney said. The FBI has not issued a warrant for his arrest, but had been looking for him after being contacted by Allied Irish executives earlier this week.
His attorney, David Irwin, did not return phone calls yesterday. But he told Bloomberg News that "Mister Rusnak is not a fugitive. No criminal charges have been filed against Mister Rusnak and we believe this will work itself out in the normal course of business."
Mr. Irwin is no stranger to high-profile cases. He represented former White House and Pentagon worker Linda Tripp during a grand jury hearing and also represented Duane Fassett, the limousine driver who testified in the Atlanta murder trial involving Baltimore Ravens linebacker Ray Lewis.
Reporters were camped out yesterday in front of Mr. Rusnak's Victorian home in a residential part of Baltimore, but he did not emerge. His wife, Linda, offered no comment. Neighbors had little to say except they hadn't seen much of Mr. Rusnak in recent years.
Allfirst has fired Mr. Rusnak, suspended four executives and suspended all foreign-exchange dealings, except over-the-counter retail transactions. Company representatives declined to outline more specifically the internal controls that failed, but said executives were alerted to the fraudulent activity after noticing increasing amounts of cash involved in many of Mr. Rusnak's transactions.
Gary Kennedy, Allied Irish director of finance and risk, said in a conference call that after several weeks of investigation, Allfirst officials in Baltimore spoke to Mr. Rusnak late last week and tried to contact him over the weekend about his trading activities. But the trader did not come to work Monday, and the company did not hear from him until yesterday afternoon. He has since been fired.
Corporate officials in Dublin were notified of Mr. Rusnak's absence Monday night, and responded by contacting the FBI and indefinitely suspending five Allfirst staffers.
Among the suspended are Allfirst's executive vice president and treasurer, the senior vice president in charge of Treasury funds management, and the senior vice president in charge of investment operations.
Analysts and the company cautioned against comparing the $750 million loss to the Leeson case, because Allfirst generates comparatively little as an investment house. Commercial and retail banking account for 90 percent of the company's profits.
"It's not like the Barings situation at all in terms of the magnitude of what went on apart from the fact there was a trader involved," Nigel Bolton, head of European Equities at Citigroup Asset Management told Bloomberg News.
Moody's Investor's Service downgraded Allfirst's financial strength rating yesterday from C-plus to D-plus. Standard and Poor's said it would review the company's A-plus credit rating.
Allied Irish said the loss would have no effect on the company's dividend policy or capacity.
American depositary shares of Allied Irish Banks, each representing two common shares, fell $4.15, or 18 percent, yesterday to $19.40.

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