The 750 million dollar man

Published on Thursday 7 February 2002 00:00

A FINANCIAL trader described as a church-going "Mr Middle America" became one of the FBI’s most wanted men last night after going on the run suspected of defrauding Ireland’s largest bank of $750 million.

American stockbroker John Rusnak was being hunted by the US authorities after the Allied Irish Bank confirmed he was at the centre of one of the biggest financial frauds since rogue trader Nick Leeson bankrupted Barings in 1995.

The father-of-two, who works in lower-level management for Baltimore-based bank, Allfirst Financial Inc, a subsidiary of Allied Irish, has not been seen since he left his home on Monday after telling his wife and children he was going to work.

Last night, David Irwin, a US attorney claiming to represent the trader, said Rusnak, 37, had not been charged and "is not a fugitive". He added that Rusnak was "somewhere in Maryland", but refused to say where.

He said: "I have spoken to John Rusnak but I am not aware of his current location. As far as I know, neither the FBI or the police have charged him.

"He has asked me to give him legal advice. I cannot comment further."

At Allied Irish’s headquarters in Dublin the scale of the complex fraud sent shockwaves down the corridors of power at Ireland’s most influential financial institution.

On the floor of Ireland’s stock exchange, where Allied Irish investments account for 12 per cent of the stock market value, panic also set in as traders attempted to halt the tumbling price of Allied Irish shares.

Rusnak, who earned around $80,000 a year, disappeared only hours before he had been due to be questioned by Allfirst management over the whereabouts of $750 million (about 537 million) missing from the bank’s huge reserves.

Allied Irish executives had also flown to Baltimore to investigate the disappearance of the money from the foreign exchange operation at Allfirst. Allied Irish believe Rusnak disguised huge foreign exchange losses at the bank with fictitious trades.

And 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 wild gambles.

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

In Baltimore last night, Allfirst president Susan Keating said it was clear the fraud had gone on for more than a year and Rusnak had beaten the system by working out how to overcome internal safeguards against unauthorised trading.

Ms Keating said the scale of the losses had been discovered when, as part of a management review, the treasury department asked foreign currency traders to lower their level of "exposure" - the potential losses the bank could incur.

She said: "This has come as a tremendous shock to us all, we regarded the trader involved as a solid performer. Clearly the controls broke down. At this moment in time, we don’t fully understand how."

Ms Keating said that five employees in Allfirst’s treasury department had been suspended, including Rusnak, who had worked for the firm since 1993.

She added: "All indications are that he is an upstanding member of his community. He is on the board of his church."

Allfirst chairman Frank Bramble said it was too early to say if Rusnak had benefited personally.

Pat Ryan, AIB’s group treasurer, who flew from Dublin to take part in the investigation, said: "The indication is that this was a very complex fraud."

A spokesman for Ireland’s Central Bank, which oversees the country’s banking sector and the Irish economy, urged account holders with AIB not to panic but confirmed the Central Bank was also investigating.

He said: "The loss is not serious enough to affect the solvency of AIB. Account holders do not need to be worried."

FBI spokesman Peter Gulotta Jr, confirmed that an investigation was under way but said no-one had been charged.

He said: "We were contacted by Allfirst on Monday and we are continuing to investigate the matter.

"At this time, it is fair to say we are very interested in Mr Rusnak’s whereabouts."

London banks immediately suspended foreign exchange dealings with Allied Irish as the bank struggled to explain how its auditors could have missed such a large-scale fraud.

This is the second time AIB has been caught up in a financial scandal involving a subsidiary company.

In 1985, the bank wrote off 86 million worth of shareholders’ funds because of losses run up by the Insurance Corporation of Ireland company it owned.

The Irish government bailed out the bank with a IR100 million loan, which has been repaid.