AIB is to disclose hundreds of pages of internal bank documents relating to the $691 million (€521 million) John Rusnak trading scandal following a landmark New York court ruling, writes Sean O'Driscollin New York.
The bank will have to disclose the documents to Bank of America and Citigroup, two banks that AIB claims were involved in hiding the massive losses incurred by Rusnak when he worked as a trader for AIB's former US subsidiary, Allfirst.
The ruling could be a major blow for AIB in its fight to win $500 million from Bank of America and Citigroup for allegedly encouraging Rusnak to keep trading with them as his losses mounted.
The disclosed documents are expected to reveal details of AIB and Allfirst's business dealings that were not previously disclosed to the public. Judge Gabriel W Gorenstein ruled AIB could not claim attorney/client privilege for documents created and gathered for a report it commissioned from Eugene Ludwig.
The judge found AIB promoted Mr Ludwig as leading the investigation and that AIB could not claim attorney/client privilege arising from legal work carried out for Mr Ludwig by the US legal firm of Wachtell, Lipton, Rosen and Katz.
A legal source familiar with the case said AIB could have appointed an attorney to lead the investigation to protect itself from outside disclosure.
"It's a good example of how not to structure an investigation," he said.
Judge Gorenstein found that AIB could not prove it had a legal relationship with the Wachtell firm.
"Neither AIB not Wachtell has provided any evidence regarding the manner in which Wachtell's purported legal advice was provided to AIB - for example, orally or in writing - or on what dates," the judge found.
He noted an AIB press release on February 20th, 2002, announced that Mr Ludwig, and not the Wachtell firm, was the "head of the investigation".
The judge said that AIB wanted legal protection for "drafts of the Ludwig Report shared with Allfirst and AIB employees, memos of Wachtell's investigation interviews and reports of attorney communications with the bank's board of directors" but could not show that such materials were "primarily or predominantly of a legal character" or that it has sufficient legal relationship with the Wachtell firm.
He noted AIB's only evidence of legal representation by Wachtell was a single statement by a Wachtell lawyer, who stated that, while aiding Mr Ludwig's consulting firm, "we also provided legal advice to AIB and Allfirst managers".
"With only this statement, the court is left to speculate as to when, where, how, to whom and in what manner the purported legal advice was provided to AIB," the judge found.
He also noted that Mr Ludwig's consulting firm interviewed 55 present and former Allfirst employees but there was no evidence that Wachtell employees conducted any of the questioning.
The legal victory for Bank of America and Citigroup could further delay disclosure in the case, which was expected to go to trial later this year.
AIB is seeking $500 million from the two banks, claiming they disguised Rusnak's massive losses and lent him $200 million to allow him to continue trading with them.
Bank of America and Citigroup deny AIB's claims.
Mr Rusnak pleaded guilty to federal fraud charges in 2003 and was sentenced to 7 ½ years in prison.
