Former foreign currency trader Mr John Rusnak (37) will today plead guilty to criminal charges related to the $691.2 million fraud at AIB's US subsidiary, Allfirst. Some sources have suggested that he could admit to some charges clearing the way for a criminal, investigation into whether other individuals may have also been associated with the massive fraud.
Mr Rusnak, who was indicted on seven counts of bank fraud and false entry into bank records, is due to appear before a US district judge as part of a plea bargain agreement with federal prosecutors. Each count of the indictment carries a maximum penalty of 30 years in prison, a $1 million fine and up to five years of supervised release after serving a term of imprisonment.
He lodged an initial not-guilty plea in June when he appeared before US magistrate, Judge Beth Gesner, in Baltimore. He was subsequently released without bail pending a formal arraignment. A trial date had been set for February 10th, 2003 and was expected to run for two weeks. His lawyer, Mr David Irwin, has been working with the federal authorities on a plea bargain that could secure a lesser sentence for Mr Rusnak if a trial could be averted.
Mr Nick Leeson, the rogue trader who broke Barings Bank after losing $1.4 billion in 1995, served four years of a six-year prison sentence in Singapore.
Mr Rusnak is not charged with having received any of the $691.2 million but that his fraudulent activities resulted in the payment of salary and bonuses of $850,000 between 1997 and 2001. He was due to receive a bonus cheque of $220,456 in February two days after the fraud was announced.
Maryland's US attorney, Mr Thomas DiBiagio, whose office has been compiling a case against Mr Rusnak, would not comment on the case yesterday. Mr Rusnak has been living with his wife, Linda, and their two children in Baltimore since the fraud was discovered last February. He has been involved in some charitable work while awaiting his sentence.
Six other employees at Allfirst's small treasury division were fired following an investigation into the fraud by former US currency comptroller, Mr Eugene Ludwig. They were Allfirst's head of treasury, Mr David Cronin, Mr Rusnak's immediate superior, Mr Bob Ray, back office clerk, Mr Larry Smith, head of internal audit, Mr Michael Husich and his colleague, Mr Lou Slifker, and Mr Jan Palmer, the senior vice-president of Allfirst's treasury operations.
Mr Ludwig's investigation did not find evidence of collusion between Mr Rusnak and other individuals in Allfirst. His inquiry did not extend to interviewing individuals in financial institutions that dealt with Allfirst's chief foreign currency trader during the five years during which the fraud was perpetrated.
AIB has since reached agreement with M&T Bank, based in Buffalo, New York, to sell Allfirst as part of a $3.1 billion deal that will give the Irish bank a 22.5 per cent stake in the enlarged bank.
Mr Rusnak had been regarded as Allfirst's star trader whose foreign currency trading was so large that it moved world markets. He primarily traded in Asian currencies, mainly the Japanese yen, through which he incurred the $691 million in losses over five years. He covered up the losses using fictitious documents and off-balance-sheet accounts with other financial institutions.
AIB has described the fraud as "complex and devious". Mr Ludwig's investigation highlighted lax management and weak controls as having contributed to the fraud which was went undetected for five years.
The $691.2 million loss consisted of $291.6 million in bogus assets and $397.3 million in unrecognised liabilities. His legitimate trading losses were $2.3 million.
