Trader Indicted In $700M Bank Fraud

A U.S. currency trader accused of hiding $691 million in trading losses at Allfirst Financial Inc. has been indicted by a federal grand jury, a court clerk said Wednesday.

John Rusnak was indicted on charges of bank fraud, false entry in bank records, and aiding and abetting. The indictment followed a four-month investigation into trading from 1997 to 2001.

Rusnak made an initial appearance Wednesday before U.S. Magistrate Judge Beth P. Gesner. He was released on his own recognizance, said deputy clerk Agnes Finney.

Allied Irish Banks PLC, Allfirst's parent company, accused Rusnak of fabricating purchase options contracts. Rusnak allegedly forged the contracts to give the bank insurance for his losses, which came mostly in Japanese yen.

Rusnak's lawyers have said Rusnak did not personally profit from the deception, but AIB contended he received hefty bonuses in reward for what appeared to be profitable deals.

The case prompted AIB to hire Eugene Ludwig, a former U.S. Treasury Department banking regulator, to investigate the bank. Ludwig's report blamed managers at Allfirst for permitting the fraud to take place.

The bank fired six Allfirst managers after the report came out.

AIB has agreed with U.S., Irish and Maryland regulators to conduct reforms in wake of the fraud.

The scandal has caused officials at the Dublin, Ireland-based company to consider withdrawing from the U.S. market, depending on how well the Allfirst division rebounds.

A shareholder lawsuit filed in March accused Allfirst and AIB of failing to pick up on indications as early as 1995 that Rusnak was doing something wrong.

AIB represents about 16 percent of the total share value of the Irish Stock Exchange. It is the largest retail bank in the Republic of Ireland.

The company operates branch networks in Northern Ireland and Britain, and holds a controlling stake in a Polish bank.

AIB formed Allfirst in 1999 from the merger of two Maryland financial institutions. The U.S. operation has about 250 branches operating from Virginia to Pennsylvania.