FBI says Irish bank trader was not embezzling

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The Independent Online

Investigators looking into the alleged $750m trading fraud at Allied Irish Banks have accepted that the man at the centre of their inquiry was not trying to embezzle the money.

Law enforcement officers who have spoken to John Rusnak believe he fell into an uncontrollable spiral of losses after trying to recoup an initial reverse. They believe his position was very similar to that of Nick Leeson whose rogue trading sank Barings Bank in 1995.

Yesterday The Wall Street Journal reported that Mr Rusnak, an employee of Allfirst Financial, a Baltimore-based subsidiary of Allied Irish Banks (AIB), told FBI investigators he had made a series of bad investments on behalf of the bank and then tried to find a secret strategy to recover the losses. When the markets fell it became impossible for him to recover the money.

One official said: "He said he was investing in various enterprises and the stock market dropped on him, so he tried to recoup the losses and he just got deeper. Whether he was authorised to make those investments is one of the questions now."

No arrest warrants have been issued and the FBI's investigation is at an early stage. But officers have found no evidence that Mr Rusnak, 37, a married man with children, benefited from the losses. "It isn't looking like he embezzled $750m and has an island in the Caribbean," one investigator said.

Mr Rusnak's lawyer, David Irwin, said his client was cooperating with the authorities, though he refused to confirm that he had been interviewed by investigators. He insisted that Mr Rusnak, a church-going member of the local school board, was not involved in any sort of theft. "It's not a theft case – I think that will be clear," Mr Irwin said.

AIB insists it has been the victim of a large fraud and its executives have spoken darkly of evidence of "internal and external collusion", raising the prospect that Mr Rusnak was not acting alone. AIB said yesterday that none of its executives had spoken to Mr Rusnak since the weekend and declined to say when any such meeting would take place. The company is in final discussions over the appointment of an "eminent person with standing and expertise" to oversee an internal investigation into Mr Rusnak's trading. A report is expected within 30 days.

Shares in AIB continued to recover, ending the week up €0.05 at €12.05 (£7.50), about 8 per cent below their closing level on Tuesday. Some £1.2bn was wiped from the value by the close of trading the next day when shares fell 17 per cent on news of the $750m (£530m) loss.

City analysts attributed the firmness of AIB's share price to continued takeover speculation, with Royal Bank of Scotland, the owner of Ulster Bank, being the favoured predator. RBS, which opportunistically acquired NatWest in 2000, shares AIB's growth strategy, which is centred on acquiring operations in the US and Europe. Last year it bought the retail banking unit of Maryland's Citizens Bank. Bank of Ireland is also tipped as a bidder, although any tie-up with AIB would probably lead to lay-offs.

The Rusnak affair has prompted AIB to begin centralising management of its worldwide currency trading operations, but it also defended financial controls at Allfirst. A spokesman said: "We have a very strong future as an independent company. But there is a great deal of surprise and anger among our shareholders at what happened."

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