John Rusnak, the rogue trader who lost $750m (£532m) at the US subsidiary of Allied Irish Banks (AIB), was gambling the bank's money on the stock markets, investigators have discovered.
Agents from the FBI have been interviewing Mr Rusnak since Thursday and are starting to gain a picture of how he managed to lose $750m despite only having a trading limit of $2.5m.
AIB has started its own investigation, sending out its treasurer Pat Ryan to find out what happened at Allfirst, which is based in Baltimore, Maryland. AIB's chief executive, Michael Buckley, has also ordered an independent inquiry into the scandal. It is expected to take 30 days.
Meanwhile Mr Rusnak will remain on the payroll of Allfirst, drawing his $85,000-a- year salary. Though he did not turn up for work on Monday, and has been suspended, he has not been dismissed and so must still be paid.
FBI investigators are starting to gain a picture of how Mr Rusnak lost $750m. Although he was supposed to be only trading foreign exchange for clients, he is believed to have speculated on the stock market, using equity derivatives as well as buying options on the dollar-yen exchange rate. These he disguised by falsifying faxes from other banks, an offence that carries a potential 30-year jail sentence and a $1m fine.
An FBI official who interviewed Mr Rusnak explained: "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."
A lawyer representing Mr Rusnak said he was willing to co-operate with investigators and would show he was not acting for personal gain. "We've certainly proved he's not a fugitive," said Maryland attorney Bruce Lamdin. "We'll prove he wasn't a thief either."
The AIB would not comment on Mr Rusnak's trading, though rival banks have said they warned AIB of unusual activity at Allfirst some weeks before the scandal broke. The AIB has admitted to lax controls of its US subsidiary and said it would strengthen them.
The Independent on Sunday has discovered that Mr Rusnak's trading was not the first time AIB was surprised by unusual business transacted by Allfirst. Directors at AIB were angry with the subsidiary when they discovered it had lent £5m to Huntingdon Life Sciences, the controversial animal-testing company.
Allfirst was one of three lenders – along with Royal Bank of Scotland (RBoS) and Comerica, a Detroit-based finance house. RBoS ended up writing off its loan under pressure from protesters, while Allfirst and Comerica were both bought out in a refinancing deal a year ago.
AIB was unable to explain why a bank specialising in finance for small businesses in Maryland would lend to an animal-testing company in Cambridgeshire.
Takeover speculation has swirled around AIB since the scandal was revealed. RBoS is considered the most likely suitor, though it has refused to comment.
Rivals have also speculated that AIB may be prepared to sell its City investment subsidiary, John Govett, to shore up its balance sheet.Reuse content