AIB has won approval in a US court to pursue a $500 million fraud claim against Citigroup, which the bank alleges helped so-called rogue trader John Rusnak to run up a $691 million loss.
In the latest instalment in the long-running case, Manhattan-based US district Judge Deborah Batts on Tuesday declined to dismiss AIB’s claim, which involves the bank seeking $500 million of compensatory damages as well as punitive damages from Citigroup.
A spokeswoman for AIB declined to comment on the matter on Wednesday evening, saying the bank does not typically comment on legal cases.
Citigroup spokesman Scott Helfman also declined to comment, while Alan Levine, a partner at Cooley, the legal firm representing AIB, told Reuters: “We look forward to the trial.”
Mr Rusnak committed the fraud at AIB’s former subsidiary Allfirst Bank in Baltimore, where he hid mounting trading losses for at least five years before they were revealed in February 2002. The scandal, which was at that stage one of the biggest rogue trading incidents on record, almost brought down Allfirst.
AIB later sold the Baltimore bank to M&T, based in New York.
Mr Rusnak pleaded guilty to one count of bank fraud, and served nearly six years of his 7½-year prison term. He was released in January 2009 and now runs several outlets of the dry-cleaning and laundry franchise Zips.
AIB has accused Citibank, Allfirst’s prime broker, of furthering the fraud by engaging in Mr Rusnak’s fake transactions, including disguised cash advances and fake trades.
As a result, Mr Rusnak traded more than Allfirst permitted, and pretended he was making legitimate currency bets, according to AIB.
Citigroup countered that the evidence “does not come even close” to suggesting it contributed to Mr Rusnak’s losses, fraudulently or otherwise.
Judge Batts nonetheless found “credible” evidence the bank misled AIB about Rusnak’s trades, and did not try to verify their legitimacy.
“Given how lucrative Rusnak’s trading was to Citibank, it would not be far-fetched to infer that Citibank did so because it was motivated to keep Rusnak happy,” Judge Batts wrote.
The judge also said Citibank’s activity might have delayed discovery of the fraud, and that Mr Rusnak’s “unorthodox requests” to the bank could have raised a red flag. (Additional reporting: Reuters)