A New York federal judge has allowed AIB to proceed with a $500 million (€416 million) lawsuit against America's two largest banks for allegedly allowing rogue trader John Rusnak hide $691 million in losses.
US district judge Deborah Batts refused a motion by Citigroup and Bank of America to stop the case and said the AIB complaint alleged "hundreds of fraudulent omissions" by the two banks.
AIB claims Citigroup and Bank of America employees helped Rusnak to hide his fraud so that the two banks could earns tens of millions of dollars in trades with Rusnak.
Judge Batts's ruling, released yesterday, was based on dozens of e-mails between Rusnak and Citigroup and Bank of America employees in which he allegedly told them to hide his massive trading losses.
One e-mail included in AIB's claim was sent by Rusnak to Bank of America in which he warned that his employers should not find out about his online trades.
"I understand I can download the info from website but ... I don't want my back office to have access to the website or any of the trade details," Rusnak wrote.
Judge Batts also based her ruling on e-mails sent by Rusnak to Citibank employees, warning them to stop sending confirmation letters about his secret trades with them.
"These confirms have to stop. My back office manager is very unhappy," he allegedly wrote in one e-mail, adding that his manager "thinks these are fake trades or something unethical".
Judge Batts allowed AIB's unjust enrichment claim and rejected an application by Bank of America to throw out AIB's claim for punitive damages.
She said the complaint alleged hundreds of fraudulent omissions by Citigroup and Bank of America that would have stopped AIB from uncovering the truth.
"Under these alleged circumstances, plaintiff could not have insisted easily on examining data that immediately would have revealed defendants' misrepresentations, since plaintiff was not alerted to that data in the first instance," she wrote.
AIB's lawyer, Alan Levine, a partner at Kronish Lieb Weiner & Hellman in New York, said that he was very pleased with the result.
Mr Levine said he expected the judge to lay out a schedule for the depositions in the coming weeks.
Citigroup spokeswoman Danielle Romero-Apsilos said that the bank would "aggressively" defend itself in court and show that its actions were proper.
John Rusnak earned $850,000 in salary and bonuses from 1997 to 2001 on high-risk trades on the Japanese yen and other currencies, while racking up massive undisclosed losses.
He pleaded guilty to federal fraud charges in 2003 and was sentenced to 7 ½ years in prison.
