Hunt on for Mr Middle America

Published on Thursday 7 February 2002 00:00

JOHN Rusnak said goodbye to his wife on Monday morning, stepped from the timber porch of the Maryland home they shared with their two daughters and left for work as usual. At least, that was what his family thought.

But, as he reversed his saloon car from the driveway, the banker, unbeknown to wife Linda and the girls, had no plans to go to his desk. The father of two was never to reach the office.

On Monday morning, the financial trader knew his dreams of a perfect life were disappearing fast. Like a common criminal, he was going on the run, and now the hunt is on for the man they are dubbing Mr Middle America.

Rusnak, 37, who is described by friends as a devout Christian and an unassuming family man, was last night at the centre of the biggest stock market scandal since rogue trader Nick Leeson bankrupted Barings bank almost seven years ago.

The FBI confirmed yesterday it was searching for Rusnak in connection with the disappearance of no less than $750 million, (537 million), from Baltimore-based Allfirst Financial Inc, the main US division of the Allied Irish Bank, the biggest financial institution in the Irish Republic.

To his neighbours in the affluent Bolton Hill area of Baltimore City, Maryland, he was a pillar of the community, a financial trader with a reputable bank and a trusted and respected member of his children’s school board. He was, at least outwardly, living the American dream.

Rusnak was born in Pennsylvania and, in seven years at the Baltimore headquarters of Allfirst, had barely risen out of lower management. Yet, he had a comfortable life.

Described by colleagues as quiet, unambitious and the typical family man, Rusnak earned about $85,000 a year, roughly 60,000, a modest sum for the US financial industry.

Still, he lived in Bolton Hill, one of the most affluent residential areas in Baltimore City. The tree-lined suburb, dotted with white picket fences and American flags, is known as stockbroker belt.

Mr Rusnak married his college sweetheart ten years ago. They moved from Pennsylvania to set up home in Maryland.

One neighbour said: "John and Linda are always taking part in school activities and John is on the local school board. They are always out with their two children, Alex and Katie. They have a great circle of friends here and the trust of the entire community."

Representatives of Allied Irish confirmed yesterday that they had called in the FBI and Baltimore City police to track down Rusnak after he failed to turn up for work on Monday. He had, apparently, been rumbled.

The father of two had been due to attend a summit meeting with Allied Irish management. They had flown in from their Dublin headquarters in a panic, to investigate the disappearance of a massive sum of money from the foreign exchange operation at its Allfirst subsidiary.

Few would have suspected. He was a middle-ranking manager, a plodder, who had hardly raced up the career leader.

In a complicated scenario that bears comparison to the futures and options gambles run by Nick Leeson, the bank’s executive now believes Rusnak disguised huge foreign currency exchange losses at the bank with fictitious trades. As he got himself deeper into trouble by betting on the direction of foreign currencies, Rusnak tried to hide the money by failing to take out "options contracts" - or insurance - on his increasingly expensive punts.

Allfirst bank CEO Susan Keating said Rusnak was a solid performer. "Clearly the controls broke down," she said. "We don’t fully understand how."

The enigma at the centre of the affair is whether Rusnak was creaming off profits, and, if so, to what extent. One theory is he was trying to chase his losses, rather as Leeson had done.

It is understood that senior Allied Irish management began to investigate losses at the Baltimore HQ of Allfirst as long as a week ago. Their efforts became more focused last weekend when an employee, thought to be Rusnak, failed to respond to local management queries.

But by the time the Dublin team travelled across the Atlantic, he had vanished.

Speaking in Dublin last night, where the scandal has sent shockwaves through the financial and political communities, Michael Buckley, the Irish bank’s chief executive, confirmed that the loss was astonishing. He was at pains to argue the catastrophic parallel of Barings was inapplicable. There was, he insisted, no way the huge losses, or the massive fall in market capitalisation, about $1.25 billion, as shares were quickly dumped, would cause Allied Irish to collapse.

The bank, he said, believed that Rusnak may have had accomplices, and several more senior members of staff have been suspended.

Mr Buckley said: "It’s a very heavy blow to the bank. As far as we can see, this was a complex and a very determined fraud. We will be writing off the money in our 2001 accounts. An investigation has identified one trader, John Rusnak, as being at the centre of this, but he went missing before we could interview him.

"We have called in the FBI and sent a special investigation team out from Dublin to take responsibility on a day-to-day basis for Allfirst. We have also suspended a number of other people in direct line above the trader involved."

Yesterday, Virginia Evans from the US attorney’s office in Baltimore, said: "We do have an investigation under way in this office, but that’s about all I can say."

The massive fraud bares a striking similarity to the 1995 collapse of Barings, of which the Queen was a customer, brought down after Leeson, a Singapore-based trader, ran up 850 million in losses by gambling on the Japanese stock exchange. He, too, had chased his losses to cover up his initial crimes.

The complex fraud against the Allied Irish Bank, which has considerable interests in Britain, shows that, despite tightened legislation since the collapse of Barings, firms are still vulnerable to internal fraud. It will raise again questions of supervision.

In the US, news of the scandal rocked the markets, where investors remain heavily shaken by the fall of the energy company Enron and the huge accounting cloud hanging over the Irish pharmaceutical Elan.

Last night, Simon Kurton, a fund manager with Aberdeen Asset Management, said the fraud was the bank’s worst nightmare. He said: "They may put a brave face on it, but in the wake of the Enron disaster, this is the last thing Allied Irish and the market needs. It is now highly likely that banking controls will again come under the spotlight."

But Mr Buckley last night remained adamant that his bank had done all it could to avert a fraud. He said: "There are some indications that there may have been some collusion with the individual involved by either somebody else within the organisation, or with some external parties. It is alarming that the suspect trader’s superiors did not know what he had been doing. But the nature of this fraud was very complex.

"We have a very adequate series of checks and balances, in the same way that a house has a very good alarm system. But someone who is determined and very expert and in a position to overcome that system can do it."