- The Washington Times - Thursday, June 6, 2002

BALTIMORE (AP) Rogue trader John Rusnak was indicted yesterday in a coverup of $691 million in trading losses at Allfirst Financial so he could earn more than $850,000 in salary and bonuses during a five-year period.
The scandal is the biggest bank-fraud case since Nick Leeson lost more than $1 billion for Barings Bank trading futures, leading to the bank's 1995 collapse. Allied Irish Banks (AIB), the Dublin-based parent of Allfirst, said Mr. Rusnak's trading may prompt it to leave the U.S. market.
Mr. Rusnak made bigger and bigger bets, and kept losing, as he tried to dig himself out, mostly trading the Japanese yen, U.S. Attorney Thomas M. DiBiagio said.
Mr. Rusnak didn't profit from the trading losses, but he entered fictitious options trades into Allfirst's computerized record-keeping system to make it appear that the bank was making money and so he could keep earning bonuses that were tied directly to his trading.
"As a result, not only did the defendant's fictitious trades hide his losses, they also appear to generate profits," Mr. DiBiagio said.
Mr. Rusnak, who faces up to 30 years in prison, a $1 million fine and five years of probation on each of seven counts, was freed on his own recognizance after an initial appearance before U.S. Magistrate Judge Beth P. Gesner. Mr. Rusnak faces charges of bank fraud and making false entries in bank records.
David B. Irwin, Mr. Rusnak's attorney, said the former trader was in good spirits and looking forward to resolving the case. The attorney would not say whether he was seeking a plea deal.
"The indictment was not unexpected, and he continues to be remorseful about the situation and any role that he played in it," Mr. Irwin said.
Mr. Rusnak, who has surrendered his passport, is confined to traveling in Maryland, Pennsylvania or New Jersey. Permission from a court supervisor is required to go anywhere else, Mr. Irwin said.
The indictment, which follows a four-month probe into Mr. Rusnak's trading, claims Mr. Rusnak made fictitious entries into the bank's computerized record system that allowed him to conceal his trading losses between 1997 and 2001 and generate false paper profits for the bank, prosecutors said.
Mr. DiBiagio said Mr. Rusnak's knowledge of the bank's oversight process enabled him to get around it.
"He was a very, very smart young man who knew his business," Mr. DiBiagio said.
Mr. Rusnak collected bonuses of almost $550,000 in the past five years, Mr. DiBiagio said.
The case prompted AIB to hire Eugene Ludwig, a former U.S. Treasury Department banking regulator, to investigate the bank. Mr. Ludwig's report blamed managers at Allfirst for permitting the fraud to take place, and AIB fired six Allfirst managers after the report was issued.
"AIB Group and Allfirst welcome the grand jury's decision to indict former employee John Rusnak on charges of bank fraud and false entry in bank records," the company said in a statement.
"AIB stated at the outset that it believed it was the victim of a complex and sophisticated fraud and these charges endorse that conclusion."
The scandal also has prompted officials with the Irish company to consider withdrawing from the U.S. market, depending on how well the Allfirst division rebounds.
A shareholder lawsuit filed in March accused Allfirst and AIB of failing to pick up on indications as early as 1995 that Mr. Rusnak was doing something wrong.


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