A group of US shareholders who took a class action against AIB following the $691 million (€582 million) trading fraud at its former US subsidiary, Allfirst, in 2002, are to receive a $2.5 million cash payment. Another action taken in Maryland has been dismissed.
The successful legal action was settled in the US district court for the southern district of New York. Under the settlement, all claims will be dismissed without admission of liability or wrongdoing by the bank. The settlement must be approved by the court.
The investors had purchased AIB American Depository Receipts (ADRs) and alleged that AIB's financial reports since 1999 fraudulently failed to reflect at least $691 million of currency trading losses. The fraud was exposed in February 2002 and immediately triggered a slump in the share price.
Lawyers' fees will be deducted from the $2.5 million award, leaving about $1 million to be shared by the owners of 6.6 million AIB shares listed in New York. AIB said that the settlement would have no impact on the bank's financial position or results as the cost is being met by its insurers.
The second case, which was dismissed in Maryland, was taken by investors seeking damages against Allfirst's directors and certain of its senior officers. They alleged these individuals were liable for failing to prevent and detect the Allfirst fraud losses.
The directors who were named included former Allfirst chiefs, Jerry Casey, Frank Bramble and Susan Keating, with investors seeking the recovery of monies lost due to the fraud.
The settlement of these cases brings an end to investor actions against the bank in relation to the fraud. AIB is itself taking a $500 million legal action against Bank of American and Citibank in the US in relation to the currency fraud.
AIB claims that both banks loaned Allfirst rogue trader, John Rusnak, $200 million, which was "disguised" as derivatives deals that allowed him to continue his current trading while earning those banks millions in fees and commissions.
AIB's six-count suit makes claims for fraudulent concealment; aiding and abetting fraud; aiding and abetting Mr Rusnak's breach of fiduciary duty to Allfirst; rescission and restitution for lack of authority and lack of consideration; money had and received; and unjust enrichment. The bank is seeking approximately $500 million in damages.
Mr Rusnak pleaded guilty to the trading fraud and was sentence to more than seven years in prison.
The former US comptroller of the currency Eugene Ludwig, who was appointed by AIB to investigate the fraud, said AIB's management and supervisory shortcomings were responsible for the debacle. None of the Allfirst or AIB senior executives was dismissed.
Mr Casey, Mr Bramble and Ms Keating left the bank, which was subsequently sold to the US M&T Bank.
