John Rusnak: Unlucky fall guy or greedy opportunist?

A lowly currency dealer's mislaid millions have shaken the financial world to its roots.
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When he joined the Maryland-based bank Allfirst as a for- eign exchange dealer in 1995, John Rusnak knew he needed to make serious money. He intended to start a family and renovate a run-down house he'd bought with his wife Linda the previous year on the outskirts of Baltimore.

Two children, Alex and Katie, duly came along and the house exterior was smart- ened up with a coat of paint and forest-green shutters. Rusnak's career with Allied Irish Banks' subsidiary seemed to be thriving. A feature in the Baltimore Sun portrayed him as a supremely confident market wizard, who interrupted the interview to pull off a couple of £3.5m trades, securing an instant £3,000 profit.

But the truth was that Rusnak was still a "nobody" in the macho world of foreign exchange trading. He earned a lowly base salary of £60,000. His bonuses were modest, too, and there were no signs of a millionaire lifestyle.

At 37 he had become Mr Middle America, with a stars and stripes flag over the front door, a labrador named Barney and the chairmanship of the school parent-teacher association. He worshipped at the Catholic church and was described by neighbours last week as a "regular guy".

But there was another side to the story. He seemed to be distracted by work. He frequently promised to raise funds for charity, but failed to deliver. At least one neighbour suspected he had no access to the top people he frequently claimed to know. That said, there was nothing in his background to suggest that Rusnak would be blamed for one of the world's largest trading scandals, ranking alongside the £800m fraud that brought down Barings Bank in 1994.

Nick Leeson, the gung-ho trader whose disastrous dabbling in Far East stocks ruined Britain's oldest merchant bank, went to jail for nearly four years for his activities. It may yet be that Rusnak will face a similar fate.

A few months ago, the first worrying signs appeared when Allfirst executives became concerned about Rusnak's requests for extra cash to fund his trading positions. As a relatively junior dealer, his trading limit was supposed to be $2.5m (£1.78m). He was asked to cut back on his use of the bank's money to fund his positions in the exchange market. The Allfirst bosses did not know it then, but Rusnak had exposed the bank to greater currency risks than was thought possible under the bank's supposedly tight financial controls.

It is believed that over the course of last year, he had gambled an astonishing $7.5bn of Allfirst's money on the yen rising against the dollar. Crunch-time came when the dollar appreciated against the Japanese currency by 10 per cent. He was left holding vast quantities of yen worth far less than he had paid for them.

The true size of the exposure was hidden, however, by the apparent purchase of a series of options contracts. These contracts are supposed to offset any losses on the original trades by betting on the currency exchange rate moving in the other direction.

Trading rooms were rife with rumours about the huge positions being taken by Allfirst, a relatively small-time player. It seems that nothing was done to alertexecutives to the suspicious trades as many of the banks were happy to stay quiet and rake in the profits.

A routine management review last month unveiled problems in the bank's dealing operation, triggering an urgent internal investigation. After four weeks of examining all of Rusnak's trades, investigators were horrified to discover 10 days ago that every one of these options contracts was fictitious. Their blood must have run cold. This left Allfirst and its parent Allied Irish Banks unprotected against potentially open-ended losses. As one commentator put it: "It was like paying your insurance premiums and finding out after the house burns down that the policy was a fake."

Rusnak initially co-operated with the investigators but last Sunday he stopped taking calls. On Monday he triggered a man-hunt when he failed to turn up to work. Bizarrely, it was not until 9.30pm on Monday that Susan Keating, Allfirst's chief executive and one of American banking's most prominent women, informed AIB headquarters in Dublin. The FBI was called in the next day. Michael Buckley, chief executive of Ireland's largest bank, was left with the task first of calculating the cost of the losses and then revealing them to the world.

On Wednesday he announced that AIB would have to write off $750m, sending shockwaves round the financial world. Both Buck- ley and the Irish Prime Minister, Bertie Ahern, tried to persuade the markets, shareholders and customers that AIB would not follow the example of Barings and go bust. And it probably won't. Some think its future can only be secured by surrendering its independence to one of its rivals.

Questions remain. Did Rusnak intend to make money for himself? Or did he, like Leeson, continue increasing his and the bank's exposure in an attempt to conceal mistakes? How could his activities go undetected for so long? Did anyone collude with him and, if so, why?

Rusnak has now met FBI investigators. On Thursday he returned home, where Linda and the kids have been prisoners with the press outside. He must know his time is up, but he may find some strange comfort in that. As Leeson put it after hearing of the news: "There is a perverse sense of release when you get caught because you have been living a lie."