- The Washington Times - Friday, March 15, 2002

Six executives at Allfirst Financial Inc. were fired yesterday following the finding of an independent investigation into massive losses resulting from bogus currency trades at the Baltimore bank. The company also accepted the retirement of its long-time chairman, Frank Bramble.
Four of the fired executives worked in Allfirst's treasury department and were supervisors of John Rusnak, the currency trader accused of racking up $691 million in losses from fraudulent trades over four years. The other two executives were members of the bank's internal-audit division.
The firings came after the release of results from an independent investigation led by Eugene Ludwig, a former U.S. comptroller of currency and now head of the Promontory Financial Group. New York law firm Wachtell, Lipton, Rosen and Katz also participated in the investigation, which was ordered by Allfirst's parent company, Allied Irish Banks PLC of Dublin.
Allfirst Chief Executive Susan Keating will keep her position.
The 57-page Ludwig Report outlines how Mr. Rusnak, 37, carried out the fraud and avoided scrutiny from his supervisors.
He "carefully planned and meticulously implemented" the fraud by falsifying bank records and documents, and avoided detection by "manipulating the weak control environment at Allfirst Treasury," according to the report.
The report said Mr. Rusnak lost about $691 million for Allfirst, after he lost money on currency trades, then tried to cover up the losses by entering false transactions in the company's computer system.
The report is particularly critical of Mr. Rusnak's immediate supervisors, Robert Ray, a senior vice president and treasury fund manager, and David Cronin, the company's executive vice president and treasurer, for failing to notice problems with Mr. Rusnak's transactions. Both were fired.
"Mr. Rusnak's trading activities did not receive the careful scrutiny that they deserved," the report said. Mr. Ray and Mr. Cronin "failed for an extended period to monitor Mr. Rusnak's trading."
Jan Palmer, a senior vice president for treasury funds management and Lawrence Smith, an assistant vice president in the treasury division were also fired.
The report said internal audits failed to notice that many of Mr. Rusnak's currency trades were phony. Michael Husich, head of the internal-audit division, and Lou Silfker, a team leader in the internal-audit division, also were fired.
The report said Mr. Husich, Mr. Silfker and other employees in the internal-audit division were not well-versed in Mr. Rusnak's field of work.
"Allfirst internal audit appears to have suffered from inadequate staffing, lack of experience, and too little focus on foreign exchange trading as a risk area," the Ludwig Report said.
Allfirst executives discovered the magnitude of the losses Feb. 4, after Mr. Rusnak failed to show up for work. Since then, Mr. Rusnak's attorneys have painted him as a man who had incurred some losses during routine currency trades, but did nothing illegal.
The Justice Department and FBI are looking into the losses, but have not pressed any charges.
However, the Ludwig Report reveals information that, if true, would indicate Mr. Rusnak not only cost his employer a substantial amount in phony trades, but also lied in an attempt to cover his tracks when finally questioned about his trading activities.
According to the report, supervisors agreed in the last week of January to phase out Mr. Rusnak's trading position, citing concerns over the validity of his trades. Supervisors then noticed Mr. Rusnak had reported 12 option trades that did not come with confirmations. When questioned, he presented counterfeit confirmations that he had made on his office computer.
The Ludwig Report said Mr. Rusnak kept a folder called "fake docs" on his computer, which contained phony confirmation documents and counterfeit logos.
Mr. Rusnak earned $428,543 in bonuses between 1998 and 2000, and was due to receive a $220,456 bonus until the trading fraud was discovered. The bonuses were tied to the income performance of his trades.
The Ludwig Report questioned the structure, arguing that it provides too much incentive for dishonest traders to create phony trades.
Aggressive compensation structures are not the ideal way to attract and compensate traders," the report said.
"The structure of Mr. Rusnak's compensation may have had the effect of encouraging greater risk taking on his behalf."

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