Trader suspected of defrauding Irish bank of $1.8 billion

By CHRIS HUGHES and ANDREW BUNCOMBE

A regular churchgoer and father of two from Baltimore is being pursued by the US Federal Bureau of Investigation after allegedly defrauding Ireland's largest bank of $US750m ($1.8b).

The revelation that Allied Irish Bank had fallen victim to a deception similar to that which destroyed Barings Bank in 1995 wiped $4.1b from its stock market value and stunned a financial world already still recovering from the collapse of US energy giant Enron.

John Rusnak, an employee of AIB's Baltimore-based Allfirst Financial subsidiary dubbed Mr Middle America for his apparently average lifestyle, ran up huge trading losses over an 18 month period up to December in what the company called a "complex, determined fraud done on the basis of conspiracy".

After allegedly going to ground, Mr Rusnak appeared yesterday at his home in an upmarket Baltimore suburb where he lives with his wife and two children.

In the company of a man who may have been his lawyer, he stayed only briefly at his home and declined to comment. When he left, his wife Linda came out of the house and told The Independent: "You've got what you wanted, you've got a lovely picture of my husband. Will you now please leave our home".

It was unclear whether Mr Rusnak and any accomplices had gained personally from rogue trading, or whether the massive losses were merely the result of incompetence.

He allegedly bought foreign currencies that later fell in value and - in a deception reminiscent of Nick Leeson, who brought down Barings - attempted to cover up the trades by setting up fictitious deals that appeared to offset the loss-making contracts.

AIB said it would have been hard to violate its internal company controls in this way without collusion internally and externally, and has suspended five staff at Allfirst who were responsible for monitoring Mr Rusnak.

Suspicions were aroused when Mr Rusnak requested additional funds for his trading activities last month. After questioning him over the weekend, Allfirst executives decided to suspend him on Monday morning.

Michael Buckley, AIB's chief executive said. "This guy was not in any sense a star trader. Until this event he was regarded as a steady trader. He wasn't earning massive bonuses."

AIB assured its shareholders the losses were unlikely to exceed $US750m, a figure that could easily be covered from its reserves. There was no danger of collapse. "It's a heavy blow, but it's a blow we can sustain," said Mr Buckley.

The bank's annual profits will sink by 60 per cent to 596m euros ($1.2b). Shares in the company fell as much as 23 per cent in early trading, but recovered ground as the City hardened in the view that the $US750m was a one-off. They closed down 17 per cent, leaving the bank valued at £6.1b ($20.6b). The FTSE 100 index fell to a seven-week low of 5,073.8.

To date, no charges have been brought against anyone at the Allfirst Bank, a subsidiary of Allied Irish banks. Peter Gulotti, spokesman with the FBI in Baltimore said: "We have opened a criminal investigation. No arrest warrants have been issued at this time. I cannot tell you anymore than that."

- INDEPENDENT