'Act of kindness' led to Barings' fall

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The Independent Online

An attempt to help an inexperienced female colleague who made a loss of pounds 20,000 trading on a futures contract led Nick Leeson to use a secret account to conceal trades which eventually brought down Barings.

Mr Leeson said the account was originally set up by his superiors in London to avert the attention of the UK authorities from some of the mistakes that arose from dealing in futures and options.

Mr Leeson says in an interview with Sir David Frost to be screened on BBC television tonight that the account was created to hide the errors that are made on a busy trading floor. "The London office was concerned that they did not want too many errors booked through a London account because of the attraction that it might draw from the Securities and Futures Authority or another regulatory body."

The account became dormant after a couple of months when the bank's head office in London decided to bring it under its control. He re-activated it later to conceal losses made by him or members of his trading team. None of his superiors knew he was running the account despite the policy change.

By the end of 1994, the secret account, known as the 88888 account, hid losses of pounds 208m. These losses grew to pounds 860m by the time all the positions had been unwound following the Bank of England's failed rescue attempt.

The account was first used in September 1992 to conceal losses made by an inexperienced woman trader who was helping out at a busy time.

The interview is the latest in a series of moves orchestrated by Mr Leeson's solicitor, Stephen Pollard, to put pressure on the British authorities to apply for an extradition request in competition with Singapore. Over the past two weeks, the Serious Fraud Office has been conducting detailed interviews with the former trader in Frankfurt. The SFO is said to believe that he has told them nothing to change their minds that Singapore is the most appropriate place for his trial.

While Mr Leeson does not give any evidence of criminal wrongdoing by his superiors, he questions the competence of Barings' senior management. He was amazed that the London office continued to send vast sums - pounds 700m by the time he finished trading - to finance his positions.

"I am amazed, especially because the main rule of futures and options business is that it is a cash-flow business and there is no funding. And so the first day that I asked for funding, there should have been massive alarm bells ringing.

"But it was advantageous to me that the people, the senior people in London that were arranging these payments, didn't understand the basic administration of futures and options.

"... I can actually see it now, they wanted to believe that the profits were being reported ... and, therefore, they weren't willing to question. Or they were less inclined to question."

Secret account, page 3