allfirst scandal

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Lax management blamed at Allfirst Bud news, in detail; Etigtne A. Ludwig, former U.S. comptroller of the currency, discusses the AUfint scandaL "A bad decision cost kirn his life and all the promise that his Itfe held." Grieving: Dundalk High School students Neena Avent (from Itfl), Kelly Bernstein and Charlent Ballon mourn Derrick Breedloue'3 eitnih. (Article. Page It) Question for Mends, family of teen: 'Why?' Student: Mans mount- ing Itu tl«till atmi/i/lr. to reconcile tlie laltuited atfitete Ifiep kneir tritfi the poutfi irho ro66«/a liquor store. Trie kids of Turner* Sta- tion looked up to Uie Derrick Sreedlove they knew — the footbaD sUr with Uie winning smile and th« full ride to college. the guy wtio wrote po- ems to the pretty glils In school. high Not "a monster": Dundalk coach Eric Webber (lefl) and counselor 0. Scott Kllpatriek discuss Derrick BreedJove. liquor store, a paper bag of "But.* she added quickly, money tn one hand, a pellet -you don't know what's In- side somebody, their heart, their mind. I look at him like this — he paid tbe conse- quences. "LKlle Hda were comln; gun In the other. Breedlove. 17, was shot by a store clerk as he tried to rob the place. Police say he was the ring- leader In a string of robberies school se- at that store and possibly others. This Ume. he is be- Into the [Sec Teen. 11* 'Human failings, 1 lira/on rogur trader arc cited in report Ludwig outlines changes Chairman gets OK to retire, CEO stays, seven others fired More inside '.i AKDRZW RATNKH DUBLIN. Ireland — A re- port Into the trading scandal that tarnished Allflrst Finan- cial Inc. of Baltimore painted a damning picture yesterday of a bank shop rife with lax management and verbal abuse and a JeKyll- and -Hyde trader who was so brazen he created a computer Die titled fake docs" to store his de- ceptions. The report by former Comptroller of the Currency EugeneA Ludwig didn't hold many surprise*, but It did put Uie blame for Uie rogue trad- Ing that cost the bank 1691.2 million no higher than middle management. Including the trader at the center of the storm. John M. Rusnak Ludwig delivered ttie re- port to the Irish stock ex- change at 7 a.m. 12 an. F.ST' yesterday and four hours later to a news conference with 200 journalists In the blond wood-paneled audlto- hum at the headquarters of Allied Irish Banks PLC, the parent company of Allflrst. "It was as much a set of hu- man tragedies as I've ever seen." said Ludwig, sitting In a private office atop AUled's headquarters here before Washington after the session with the press. Hi£ report detailed dozens of changes that Allied Irish and Alinrst should make to shore up their treasury oper- ations. They Included; Terminating all propri- etary trading at Allflrst and relocating customer trading activities to Allled's New York branch. Requiring traders to function in a group to avoid "lone wolves." Using more "stress test- ing and scenario analysts" to gauge risk In currency portfo- lios. Confirming all trades Im- mediately. Ensuring that top execu- tives of Allied Irish take full responsibility for Uie trading activities [SeeAllflnl. 8*\ ShortflD: Chairman Bramble was cleared In the currency debacle, but he'll depart with goals unmet. [Page BA] Downfall: Treasurer Cronln was called a key weak link. [Pages*] Chance exposed trader's scheme Allfirst report says laziness, deceit led to SG91.2 million loss 11. was Happenstance that led to John M. Rusnak's u::- doing at Allflrst Financial His nve-year currency trading scheme didn't begin ummvellnR Because of the bank's star: of auditors or risk managers, a report re- leased yesterday said. Out be- cause a supervisor glanced down and saw two trading tickets that didn't make sense. This Is a corporate mug- ging; the mugger was Rus- nak." said Eugene A. Ludwig. former U.S. comptroller of the currency, who conducted a monthlong internal Investi- gation Into the looses at the request of AUfirsi's parent, Dublin-based Allied Irish Banks PLC. Ludwlg's 57-page report lays out a tale at incompe- tence, laziness und deceit leading to $991.2 million In losses for the bank. The re- port shows how the table was set for the scheme in July

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Allied Irish investigation

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Page 1: Allfirst scandal

Lax managementblamed at Allfirst

Bud news, in detail; Etigtne A. Ludwig, former U.S.comptroller of the currency, discusses the AUfint scandaL

"A bad decision cost kirn his life

and all the promise that his Itfe held."

Grieving: Dundalk High School students Neena Avent (from Itfl), Kelly Bernstein andCharlent Ballon mourn Derrick Breedloue'3 eitnih. (Article. Page It)

Question for Mends,family of teen: 'Why?'• Student: Mans mount-ing Itu tl«till atmi/i/lr. toreconcile tlie laltuitedatfitete Ifiep kneir tritfithe poutfi irho ro66«/aliquor store.

Trie kids of Turner* Sta-tion looked up to Uie DerrickSreedlove they knew — thefootbaD sUr with Uie winning

smile andth« full rideto college.the guy wtiowrote po-ems to thepretty glilsIn school.

high

Not "a monster": Dundalk coach Eric Webber (lefl) andcounselor 0. Scott Kllpatriek discuss Derrick BreedJove.

liquor store, a paper bag of "But.* she added quickly,money tn one hand, a pellet -you don't know what's In-

side somebody, their heart,their mind. I look at him likethis — he paid tbe conse-quences.

"LKlle Hda were comln;

gun In the other. Breedlove.17, was shot by a store clerkas he tried to rob the place.Police say he was the ring-leader In a string of robberies

school se- at that store — and possiblyothers. This Ume. he is be-

Into the [Sec Teen. 11*

'Human failings,1

lira/on rogur traderarc cited in report

Ludwig outlines changes

Chairman gets OKto retire, CEO stays,seven others fired

More inside

'.i AKDRZW RATNKH

DUBLIN. Ireland — A re-port Into the trading scandalthat tarnished Allflrst Finan-cial Inc. of Baltimore painteda damning picture yesterdayof a bank shop rife with laxmanagement and verbalabuse and a JeKyll- and -Hydetrader who was so brazen hecreated a computer Die titledfake docs" to store his de-ceptions.

The report by formerComptroller of the CurrencyEugeneA Ludwig didn't holdmany surprise*, but It did putUie blame for Uie rogue trad-Ing that cost the bank 1691.2million no higher than middlemanagement. Including thetrader at the center of thestorm. John M. Rusnak

Ludwig delivered ttie re-port to the Irish stock ex-change at 7 a.m. 12 an. F.ST'yesterday and four hourslater to a news conferencewith 200 journalists In theblond wood-paneled audlto-hum at the headquarters ofAllied Irish Banks PLC, theparent company of Allflrst.

"It was as much a set of hu-man tragedies as I've everseen." said Ludwig, sitting Ina private office atop AUled'sheadquarters here before

Washington after the sessionwith the press.

Hi£ report detailed dozensof changes that Allied Irishand Alinrst should make toshore up their treasury oper-ations. They Included;

• Terminating all propri-etary trading at Allflrst andrelocating customer tradingactivities to Allled's NewYork branch.

• Requiring traders tofunction in a group to avoid"lone wolves."

• Using more "stress test-ing and scenario analysts" togauge risk In currency portfo-lios.

• Confirming all trades Im-mediately.

• Ensuring that top execu-tives of Allied Irish take fullresponsibility for Uie tradingactivities [SeeAllflnl. 8*\

ShortflD: ChairmanBramble was cleared Inthe currency debacle,but he'll depart withgoals unmet. [Page BA]Downfall: TreasurerCronln was called a keyweak link. [Pages*]

Chanceexposedtrader'sschemeAllfirst report sayslaziness, deceit ledto SG91.2 million loss

11. was Happenstance thatled to John M. Rusnak's u::-doing at Allflrst Financial

His nve-year currencytrading scheme didn't beginummvellnR Because of thebank's star: of auditors orrisk managers, a report re-leased yesterday said. Out be-cause a supervisor glanceddown and saw two tradingtickets that didn't makesense.

This Is a corporate mug-ging; the mugger was Rus-nak." said Eugene A. Ludwig.former U.S. comptroller ofthe currency, who conducteda monthlong internal Investi-gation Into the looses at therequest of AUfirsi's parent,Dublin-based Allied IrishBanks PLC.

Ludwlg's 57-page reportlays out a tale at incompe-tence, laziness und deceitleading to $991.2 million Inlosses for the bank. The re-port shows how the table wasset for the scheme in July

Page 2: Allfirst scandal

Page 8A: Friday. March 15,2002: The Sun

Ludwig's report finds scandalhad roots in 'human tragedies'lAllflTstJram Page IA\

of the bank.Mury Louise Preis, Maryland's

commissioner of nnandal regula-tion, sold state regulators have acopy of the report and are compar-ing it with their own investigation.State bank examiners are stillprobing bank records, she said.

The slate will continue to moni-tor Allf i rs i and will make sure thebank addresses Its problems.

"I think there were substantialcontrol failures." Prels said. I .ud-wlg's briefing, which ran two hours,drew sharp questions about theactions the board announced

Allflrsl Chairman Prank P.Bramble was given permission toretire June 1. The bank said he wasfulfilling earllerplans to retire.

This report has confirmedthat Fmnk Bramble had no In-volvement In or knowledge of theImproper conduct." an Alliedstatement said.

Susan C. Keating retained herposition as chief executive officer.She will have a new boss: EugeneSheeny, credited with building Al-llcd's successful retail bank opera-tion through Ireland, will becomechief executive officer of AIB USADlvlilon anil executive chairman-designate of Allflrst. Sheehy was Inthe United States yesterday at anAllied bank ribbon-cutting, bankofficials said

Some analysts were surprisedthat the two top officers were notdismissed, given the size and dura-tion of the bank's tosses.

A Dublin bnnklnfC analyst, whofollows AIB said he expects Keat-ing to ultimately be removed "Atthe end of the day, the buck stopswith the chief executive." said theanalyst, who requested anonymity.'It's not Insignificant what hap-pened here. In fact. It's very signifi-cant."

But with Bramble leaving, Itwas Important that Keating re-main In her post for a smooth tran-sition and to keep Allflrst's cus-tomers calm, the analyst said. ButMichael Buckley, chief executiveofficer or Allied Irish, said Keatingwas not culpable because tradingwas only a fraction of the responsi-bilities she aiiaumed only 18months ago.

~I don't wont to be an apologistfor her, but it is responsible of theboard In this case not to take hiout," Ludwlg said.

Several analysts agreed, sayingAUOrst might have wounded theU.S. franchise If 11 lost both Dram-hlc and Keating slmultuneoiUily.

'The markets were asking thesame question, 'What about SusnnKeating?' but that misses thepoint." .v.id Ray KlnnellR, a univer-sity business professor In Dublinwho wrote a book on banking con-trols. "Ludwlg's Job was to namenames and he didn't name hen."

Seven other employees ofAllflrst were dismissed — withoutseverance, the bank sold — as a re-sult of Ludwljfs findings.

Allfiral Treasurer David M.Cronln and Rusnak's supervisor,Robert Ray. were the highest-ranking executives let go. Asidefrom Rusr.nk himself, they werethe most heavily criticized figuresIn I.uiiwlii's assessment and by Al-lied lop executives yesterday.

Cronln and Ray missed enoughred flags to decorate downtownMoscow because they werecharmed. Impressed — and ulti-mately overmatched — by Rusnokand his International trade maneu-vers. Ludwlg said.

Others who were InformedWednesday night that they arc be-ing fired were Allflrst treasury ex-ecutive Jan Palmer. LawrenceSmith, whose responsibilities In-cluded verifying Rusr.nk's trades;and two Internal audit managers.Michael Huslch and Lou SUfker.

The stunning loss — equal tohalf of Allled's profit for 2001 — willalso lead it to centralize greateroversight of Its disparate bankingproperties in the United Kingdom,the United States and Poland un-der the home office. The boards ofthe parent and subsidiary bankswill be shuffled slightly to fosteradditional oversight, too.

Allied Chairman LochlonnQulnn sold yesterday that hedoubted the company would gethack much of the money loat toRusnak's trades.

Ludwlg sold AllQrst consti-tuted the "fourth worst bankingscandal in world history" and wasunlike any other he'd ever studied.

"It was as much a set of humantragedies as I've ever seen," Lud-wlg Bald. There was a human dy-namic here that was unholy."

Rusnak's superiors "weren'tcrooked," added Ludwlg. They re-lied on the outward signs of an In-ward grace. I learned somethingmyself. To be a really good banker,you've got to be skeptical.''

His 57-page report torched themismanagement In Allflrsfs trad-Ing department and painted aneven darker picture of Rusnak. 37.of Mount Washington, than hademerged previously.

Rusnak engaged In "vigorousmanipulation" by creating Falseconfirmation slips from other

that we had the controls. The twopeople senior to Rusnok went tosleep and the controls were not ap-plied," said Qulnn. the Allied chair-man, referring to Cronln and Ray.

"I felt absolutely betrayed bysomeone In a senior position."

ickley said of his contact lost

banks and altering computer Infor-mation before others saw It tomask his losses. Ludwlg said.

The hoEU-j confirmations vprepared on Rusnak's home com-puter In a file called "fake docs,"the Investigation found.

The FBI is still Investigatingwhether Rusnak should be ycarwith Cronlncharged criminally. Bank rcgula- "If every time a manager wastors from the U.S., Maryland and asked a question and we had toIrish governments are also con- bring In an external auditor totlnulng their reviews of potential check It out, we wouldn't get be-banking violations. yond two questions a day," Qulnn

The report portrays him with said. The reason that Mr. Cronlntwo sides: As an honorable family Is no longer with us Is because ofman, church-goer and community this."volunteer, but also with an inflated Cronln declined to comment,ego and a reputation for verbally Sun ita/f writers Michaelabusing co-workers who ques- James and WHtiwn Patalon III News briefing: Allied Irish Banks Chief Executive Michael Buckley (lefl), AIB Group Chairman Lochlaitloned his trade activities, which contributed to this article. Quinn and Eugene A. Ludurig tell the prejiaboutresults of the invetttgation.often Involved wagering an thefluctuations of the value of U.S. _ __ ..... _.. . . . . _ _ _ . . _ _ ._. __.dollar against the Japanese yen.

•It was extraordinary,'' Ludwigsaid. "It was such a long period ofsuch vigorous manipulation, I have

slve. But he lost money the oldfashioned way: He bet wrong. Ifhe'd only thought, 'If 1 did the op-posite....'"

There were tons of trades I'dnever seen before." said DuncanHcnncs, once a trading supervisorat the former Bankers Trust andnow a Ludwig associate who as-sisted in the Inquiry. 'It took a lotof head-scratching to wonder whyname of these trades were made."

David B. Irwln, Rusnak's at', or-

wlg's report, but said: 'Our focus Isnecessarily on the continuing anddeliberate Investigation of the FBIand the U.S. attorney's office forthe District ofMaryland."

Cronln was perhaps the mosttragic figure In the episode, ac-cording to the report.

He knew trading as a formercurrency trader (or Allied In Lon-don and worked for the CentralBank of Ireland. After Allied senthim to the United States In 1S8S.Allflrsl bankers considered him "aspy from headquarters," while Al-lied executives thought of him ox"thelrmanlntheU.S."

Alllcd Irish executives reactedharshly to Cronln and RobertRays rale In the scandal

The really annoying part Is

Trader's scheme unveiled by chance, report says[Rusnak. from Page

because he portrayed himself as anexperienced trader who couldmoke money for the bank, the re-port said. Rusnaksald he would doso by using options to make so-phisticated currency bets.

Cronln, a former currencytrader from Allied Irish, had bigplans for currency trading atAllflrsl. He wanted to make thesmaller bank a major "niche"player In a global market.

Rusnak seemed to fit In well atAllflrst, Some saw him as "strongand confident." a "good familyman." the report sold, though oth-ers viewed him as "arrogant andabusive."

Rusnsk's methods of tradingturned out to be simpler than hehad portrayed, the report said. Hemade straightforward bets on thedirection of the yen and began run-ning up losses when some of thebets turned out to be wrong.

After sustaining heavy lossesaround 1997. Rusnak began to dis-guise them by using fictitious op-tion trades that appeared to hedgehlsbets, thereportsald.

Rusnak was able to moke ex-tremely large trades because heset up agreements with big money-center banks. The accounts, calledprime brokerage accounts, "effec-tively permitted Allfirsi to maketrades In the prime brokers'

Such arrangements were un-usual for a small trading operationlike AllOjit's. Using them, Rusnakbecame a voracious trader. Hetraded at nlgbl uml from hUs homeIn Mount Washington. He tradedwhile on vacation, which the reportnoted Is prohibited In most tradingoperations because It provides anopportunity for a trader to perpe-trate continuing fraud.'Wined and dined'

The heavy trading made Rus-nak a celebrity of sorts among bro-kerage houses that wanted to dobusiness with him.

The broken and tradersheavily entertained Mr. Rusnakwith meals, hotel stays, golf trips.Super Bowl tickets and othertravel," the report said. "He appar-ently liked to be wined and dined,and the brokers obliged."

Bramble's retirement no sunny eventChairman Is absolved,but career is cut short

By WILLIAM PATALON inAND GDB G. SctrrcuzNTBB

To his closest friends, AllflrstFinancial Inc. Chairman Frank P.Bramble often talked about leav-ing the fast-paced world of busi-ness at a relatively young age, pos-sibly even to teach.

Bramble, S3, is getting his wish,though perhaps not In the un-clouded atmosphere he mighthave desired. Allflrat's Dublin-based parent. Allied Irish BanksPLC. disclosed yesterday that theAllflrst chairman will retire June 1.

The announcement of Bram-ble's Impending departure accom-panied the findings of an internalAIB probe into SOQ1 million intrading losses at Aliflrat. but at thesame time absolved him of blame.

The Internal investigation con-ducted by Eugene A. Ludwlg "bosconfirmed that Frank Bramblehad no Involvement in or knowl-edge of the Improper conduct thattook place in AUfirsl's Treasuryunit (where currency trading tookplace]," the company sold In astatement.

According to AIB, Bramble hadprivately told the Dublin bank thathe wanted to retire even before thelosses were discovered

ADursl snicl Bramble wan notavailable for an Interview yester-day.

While Bramble was given a freepass In the fiasco, executives whoknow him acknowledge that hehad yet to reach the level of suc-cess at Alifirst that he had beencredited with at previous bonkinglobfl.

If not for the currency debacle,with the momentum beingachieved In some of the bank'sbasic businesses, another year atAllflrst's helm might have allowedhim to leave there as a winner, too.severalsourcessay.

But then the trading scandalbroke.

The numbers were really look-ing better." said an obviously dis-appointed executive who hasworked with Bramble at several In-stitutions.

Bramble joined First MarylandBancorp — the forerunner ofAllfirst — as president and chiefexecutive officer In April 1094. Hewas viewed as an executive whosesuperb communication skills

Frank P. Bramble, head ofAllfirst Financial Inc., was foundhtamtttsi in the trading scar.dal.

made him a great coalltlon-bullder, a necessary talent. But themove rankled among some withina bank that had a history ofgrooming its own leaders by pro-motlngfrom within.

"By and large, the employeebase to this day remains skepticalof him," a former Allflrst executivesold.

Prior to joining Allflrst, Bram-ble was tapped by Cleveland ty-coon Alfred Lerncr to help rescue ateetering MNC Financial Inc., par-ent of Maryland National Bank,the largest In the state. He tookover in July 1991, at age 43. A yearand a half later, he presided overthe sale of MNC to NatlonsBankfornbout 51.4 billion.

As It stands now, the turn-around and sale of MNC will standas the high-water mark of Bram-ble's banking career.

That's still quite an achieve-ment for a Calvert Hall athlete whoworked his way to the top from en-try-level jobs, without benefit of acollege degree.

Bramble's working life startedIn 13GQ ;us an employee of C&PTelephone Co., emptying coinsfrom pay telephones.

A year later, he joined First Na-tional Bank of Maryland — prede-cessor of Allflrst — as on auditclerk, and In 196B he Jumped toMaryland National Bank as an ac-counting clerk. By 1D77. Bramblebadrucn to assistant controller.

Several more promotions hadfollowed when. In 197B. he Joinedbank consultants Danlelson Asso-ciates as an associate director,where he started a lifelong friend-ship with firm principal Arnold G.

Danlelson.'He Is very bright and very tal-

ented and has the strong ability toget along with people," a strengthtop executives need to get differentfactions to buy Into a single strat-egy, Danlelson ttald.

At the same time, be sold.Bramble often spoke of retiringearly, perhaps to teach college orjust tobewlth his family.

Bramble set out on his own as aconsultant before rejoining Mary-land National Bank In 1983. as avice president in the internationaldivision. When the bank began tofounder after a series of bad realestate loans, he was named chiefoperating officer under Lemer, thebank's largest shareholder, whohad assumed control Six monthslater, he became chief executive of-ficer as Lemer stepped back fromthe day-to-day operation, a posi-tion he held until the takeover byNatlonsBank.

During his tenure as a top areabanker. Bramble has meant a lotto Baltimore because of his civiccommitments. Bramble served onthe University of Maryland Medi-cal System Corp.'s board of direc-tors for eight years, the last four as

Rapoport, the president and CEOofthe University otMarylond Med-ical System Corp., who also Is onAMrsl'a board ofdlrcctam.

Bramble stepped down aschairman In December as part otthe normal leadership changeover.

"He has been a mentor to me.and he was an outstanding chair-man," said Rapoport. "He helpedus over the past four years as weacquired four other hospitals. Hewas extremely analytic and Inci-sive In helping us analyze businessopportunities for the medical sys-tem to grow and strengthen Its fi-nancial position.

"He still serves on the board,and I value his participation andhis Judgment. ... I really considerhim an outstanding person In our

Donald P. Hutchlnson, presi-dent of the Greater BaltimoreCommittee, called Bramble "one ofthe finest guys I've ever known, oneof the most honorable, one of themost thoughtful, decp-thlnklngpeople."

"While I can't predict where hiscareer will Uikc him ... he has ter-rific skills and there are businessleaders who have respect for him,"Hutchlnson said. "If he wonts tocontinue to work. I'm sure thatthere'll be a role for turn In this

Eugene A. Ludwig: -Thtsisocorporate mugging; the muggerwas Rusnak."

Rusnak traded so heavily thaton a single day in May 2001. he "ex-ecuted four transactions — twowith Citibank and two with Bankof America — that Involved a totalof about (1.6 billion In notionalvalue," the report Hold,Avoldiiig exposure

Such heavy trading shouldhave alerted Rusnak's superiors topotential problems, the reportsaid, but he was able to conceallosses through a number of strata-gems and lack of supervision.

For one thing, his trading man-ager left the bonk In the fall of 1999.From then on, his direct supervisorwas Ray, whose "knowledge of for-eign exchange was limited." the re-port said.

Ray devoted little time to over-seeing the trading operations, thereport sold His time was devotedInstead to his many other respon-sibilities, which Included oversee-ing the bank's portfolio of Invest-ments nnd ensuring that 1U booksbalanced at the end of every day.

Stunningly, Rusnak was able toskirt one of the standard controlsemployed by banks or brokeragehouses that operate trading desks— the trade confirmation. Everytrade WHS supposed to be con-nrraed by someone In the bank'sback office who worked Independ-ently from the trader.

"But Mr. Rusnak was somehowable to bully or to cajole the opera-tions staffer responsible for con-firming Mr. Rusnak'n trades Intonot confirming all of them," the re-port sold.

He even persuaded a back-office employee that certain optiontrades In Asia did not have to beconfirmed, something the reportnoted that the clerk might havefound convenient. Because of thetime difference. confirmlniE Asiantrades would have required theback office employee to be at workIn the middle of the night.

Rusnak also found ways to cir-cumvent risk-control officers, whouse a statistical model to help esti-mate the maximum range of loss atrader might suffer In a given port-folio. To calculate the risk, the con-trol officers needed access to cur-rent foreign currency rates and toa listing of Rusnak's current hold-ings.

But Rusnak falsified his hold-ings, the report said, making It ap-pear that he held certain optionswhen he did not. He also made itappear that the amount of thebank's money he had at risk at anyone time —his open currency posi-tion — was smaller than it really

Thla was a "necessary step,"the report cold, "because Mr. Rus-nak often had huge open positionsnotwithstanding his bogus optionpositions."

Rusnak woe able to get awaywith this because the risk-controlofficers took some of the numbcnithey used In their statistical modeldirectly out of his computer. Manyof the numbers were false.

Even auditors were foiled.In 1399. Internal auditors failed

to take any samples of Rusnak'stransactions to see If they hadbeen confirmed. In August 2000,they gampled only one of Ru.inak'Bforeign currency option trades. Itturned out to be genuine.

If they would have sampledmore, the report shows, they al-most certainly would have uncov-ered Rusn.ik's scheme. The rea-son: "Roughly 50 percent of the 83foreign exchange options on thebooks at that time were bogus."thereportsald.

In fact, the report shows thatRusnak largely operated on bisawn. The company did not tape hisphone line, a standard procedureon many tradlngfloors.

In addition, Rusnak's direct su-pervisors, Ray and Cronln, "failedto examine In any depth Mr. Rus-nak's positions and trades."

The beginning of the end, the re-port said, came In early Decemberwhen the back-office supervisorstumbled upon the two tradingtickets on the desk. Neither hadconfirmations attached,prompting the supervisor to orderthe back-office employee to getthem from Rusnak. He apparentlydid not follow through.

In January, Cronln, who had re-turned from a vacation in Ireland,noticed wild fluctuations In theamount of net onsets Allfirst hadwith respect to foreign exchangetrading.

At the end of the year, theamount listed on Allflrst's balancesheet was $150 million, but by mid-January It had spiked to well overS200 million In a single day.

By mid-January, Cronln wasconsidering shutting down Rus-nak'a trading, at least temporarily,to see whether any problemswould surface. At the time. Raytold Cronln that It would costabout $500.000 to close out Rus-nak's positions. Cronln told Lud-wlifs Investigators that he decidedto wait a couple ofweeks.

At a staff meeting on Jon. 28,Cronln announced that Rusnak'spositions were being closed out.

-That's It then?" Ray said."We're continuing to close out ...Rusnak's positions?"

When Cranin said yes, Ray pre-dicted that Rusnak would quit.

A couple of days later, the back-office supervisor inquired whetherRusnak was still trading. The em-ployee said Rusnak had traded asmall number of options andshowed his supervisor two dealtickets. Neither had confirmationsattached.'Fake docs'

Reminded that every tradeneeded a confirmation, the em-ployee reviewed UckeU Involvingcertain Asian options and discov-ered 12 unconfirmed trades. ByFeb. 1, Rusnak had left 12 writtenconfirmations on the back- officeemployee's desk.

The confirmations "looked bo-gus," according to the report. AnInvestigation later revealed thatRusnak had created them on htnhome computer In a file called"fake docs."

When confronted about the bo-gus-looking confirmations, "Rus-nak became angry," the reportsaid. "He said he was makingmoney for the bonk, and that If theback office continued to questioneverything he did. they would drivehim to quit. Mr. Rusnak left the of-fice fora walk outside."

Ray "warned that If Mr. Rusnakleft the bank, the loss of his profit-able trading would force Job cuts Inthe back office."

It was Friday. Feb. 1. and theoversea* trades could not be con-firmed until Sunday night, the re-port said. Rusnak promised to callthe back-ofOcc employee and givehim the phone number for the bro-ker who arranged the trades. Henever did.

When Ruanak failed to appear atwork tbe next Monday, Ray andthe back-office manager reportedthe transactions to Cronln. In one"final, but futile." effort to find Rufi-nak and confirm the trades, Rayand Cronln drove to Rusoak'E