Mr John Rusnak, the Allfirst currency dealer linked to $691 million (€736 million) in trading losses at the AIB-owned bank, was yesterday indicted at a federal district court in Baltimore, Maryland, on seven counts of bank fraud. The charges each carry a maximum sentence of 30 years in jail and a $1 million fine.
Mr Rusnak was taken to the court from his home in a Baltimore suburb by FBI agents yesterday morning and released without bail by US Magistrate Judge Beth Gesner. No date was set for the trial.
Mr Thomas DiBiagio, US Attorney for the district of Maryland, said the investigation into the bank's losses was still continuing and declined to comment on the possibility of charges against other persons who may have helped Mr Rusnak.
"That would jeopardise the ongoing investigation," he said.
Though it was the "largest bank fraud in the US in the past decade", Mr DiBiagio said that Mr Rusnak was not charged with receiving any of the lost funds. He is charged with defrauding Allfirst of the salary and bonuses he received over the past five years. These amounted to $850,000, not including a $220,000 bonus that Allfirst did not pay after the loss was discovered.
The indictment reveals new details of the extraordinary lengths to which Mr Rusnak allegedly went to hide his losses at the bank from 1997 to February this year. These included the creation in January 2001 of a mailbox in New York from which he used the fictitious name David Russell to confirm a counterfeit yen/dollar options contract.
Mr Rusnak gave the bank auditors the name of David Russell with a fictitious counterparty code, "RBCDS FX", at the mailbox address at 2472 Broadway, New York to confirm the contract. He signed a false confirmation "David Russell" with the title vice-president, and sent it directly to Allfirst's independent auditors.
The indictment also gives new details of how Mr Rusnak concealed his losses by "borrowing huge sums from five different banks" in the form of five "deep-in-the-money" contracts, otherwise known as synthetic loans.
Mr Rusnak obtained $125,000 from Citibank in February 2001, $75,000 from Bank of America in March 2001, and $25,000 from Deutsche Bank, $25 million from Merrill Lynch and $50 million from Bank of New York in December 2001 .
The AIB-commissioned Ludwig report in March referred to these contracts but only mentioned Citibank and Bank of America and did not detail the individual amounts involved.
Mr DiBiagio said he was surprised by the sophistication of the frauds and the cover-up.
"It was a very complicated and sophisticated crime," he said, with Mr Rusnak using "a multi-layer pattern of deception".
The first count charges Mr Rusnak with devising a fraudulent scheme to obtain money owned by the bank to create the impression he was generating profits so he could receive his salary and bonuses. The other six counts accuse him of entering individual fictitious option trades from Citibank (2), Bank of America, Merrill Lynch, Deutsche Bank and Bank of New York into the bank's system. On top of that, he allegedly created 12 fictitious foreign currency option trades to hide his losses.
Under the first count, Mr Rusnak is charged with entering false trades into the bank records and creating fictitious telefaxes purportedly sent to the bank by counter-parties, and providing these fictitious confirmations to personnel in the back office, the operations area whose duty was to confirm trades. Mr Rusnak was alleged to have wrongly convinced Allfirst colleagues that it was not necessary to confirm certain trades.
Six Allfirst officials, including his direct supervisor, Mr David Cronin, who was vice-president and head of treasury, have been fired since the trading losses were discovered. Mr Cronin was said by Mr Ludwig to have been "asleep at the wheel".
Mr Rusnak used prime brokerage accounts with Citibank, Bank of America and Merrill Lynch to conceal details of his daily trading activity, the charge states. These accounts allowed the trader to enter into foreign exchange transactions with a third party without entering them on the Allfirst books.
He allegedly entered false prime brokerage transactions into the bank records and then cancelled or reversed them to conceal his actual trading losses. Mr Rusnak was also alleged to have provided bank personnel with a spreadsheet that contained false information about holdover trades, transactions that purported to show he was within the risk limits.
Mr Rusnak is believed to be co-operating with prosecutors, though the US attorney refused to confirm this.
The fact that the investigation is still ongoing suggests that further charges might be considered against former Allfirst employees who shielded Mr Rusnak's losses or of officials at other banks who benefited from some of Mr Rusnak's unauthorised trades.
Bank of America and Citibank both said they found no evidence that their employees colluded with Mr Rusnak. Two Citibank traders were fired over the affair, reportedly because of breaking the rules about entertaining clients.
