A US law firm has filed a class action suit against AIB on behalf of investors who claim the bank fraudulently failed to reflect $691 million (€795 million) in trading losses in its accounts.
The firm is representing US investors who bought AIB American Depositary Receipts (ADRs) - shares which are traded on the New York Stock Exchange - between January 1st, 2001 and February 6th, 2002.
It cites a memo, written in 1999 and obtained by the Wall Street Journal, in which Allfirst officials expressed concern that Mr Rusnak was sometimes exceeding his risk limits, as the basis for its claim. AIB announced the trading loss to the market on February 6th.
The legal action was filed by the Washington-based firm Finkelstein, Thompson & Loughran on Tuesday. In a statement, the firm alleges AIB's financial reports failed to disclose details of currency trader, Mr John Rusnak's, trading losses, which the bank revealed were incurred over a five-year period. It is seeking unspecified damages. It has said any other AIB shareholders in the US can join the action if they make an application within the next 60 days.
Investor Mr Walter P Linn claims in the suit that AIB and Allfirst and its executives, "failed to implement adequate control and oversight mechanisms" and should be held responsible for a decline in value of Allied Irish's ADRs since the losses were disclosed in February.
Mr Rusnak has not been charged but bank officials have accused him of using phantom gains on artificially-created trades to offset real market losses.
The suit was filed in the US district court for the southern district of New York on behalf of all investors who bought AIB ADRs over the 13-month period. It states the plaintiff "seeks to recover damages on behalf of all investors who purchased AIB ADRs during the Class Period and who suffered damages as a result". AIB refused to comment on the legal action.
Class actions are very common in the US and are filed where investors lose money through corporate fraud. US investors can pursue this action under US Federal securities laws and seek remedies when the true position is known. Foreign investors who purchase securities traded in the US may also be entitled to protect their interests in the US courts.
The suit has been lodged days before former US currency controller, Mr Eugene Ludwig, finalises his report into the Allfirst fraud, which is due to be given to AIB chairman, Mr Lochlann Quinn, this weekend and will be considered by the bank's board of directors next week.
