Indictment describes rogue trader, web of deceit
Mailbox rented under alias helped throw off auditors
"He never received much mail, maybe one piece," said Dawkins, who didn't think that was strange because overseas customers occasionally open accounts to establish a U.S. address. "It was only open for about three months and then he just disappeared."
Yesterday's indictment, layered on top of previous information, described a case of man over machine: a rogue trader who concocted a fake persona and paper trail to keep his bosses, auditors and back-office colleagues with sophisticated computer systems in the dark about his ultimately unsuccessful charade to conceal huge losses in currency trades.
Many of Rusnak's deals assumed - wrongly - that the U.S. dollar would weaken against the Japanese yen.
The indictment repeated some findings revealed last March in the report by Eugene A. Ludwig, a former U.S. comptroller of the currency. Ludwig was hired in mid-February to investigate the losses about a week after their discovery by Baltimore-based Allfirst and its parent bank in Dublin, Ireland, Allied Irish Banks PLC.
Rusnak had "a very sophisticated knowledge of the process," Maryland's top federal prosecutor, Thomas M. DiBiagio, said yesterday.
The seven-count federal indictment accuses Rusnak, among other acts, of creating a false identity as "David Russell" and setting up a mailbox in that name to help throw bank auditors off his trail.
He directed the auditors on or about Jan. 20, 2001, to contact Russell, of a fictitious entity called RBCDS FX, at that mailbox address - 2472 Broadway, Suite 162, New York, N.Y., 10025 - to confirm one of his trades.
Prosecutors allege that Rusnak falsified a confirmation of the trade as David Russell and returned it to the auditors so that they would believe the contract was legitimate.
Dawkins said yesterday that Rusnak would have had to supply a copy of a credit card and a driver's license or passport to lease a mailbox, although prosecutors did not say yesterday whether Rusnak had forged documents other than bank-related records. The mailbox was closed after Rusnak - "Russell" - did not respond to invoices to continue it, Dawkins said.
"The police were asking about it two months ago. They said they were going to subpoena us, but I said, 'You don't have to do that. We'll give you the information you need,'" he said.
As in Ludwig's report to the bank, the federal indictment also alleges that Rusnak manipulated data on Allfirst's computer system so that it would not trigger alarms that he was exceeding his "value at risk" limit, or VAR.
That's the largest amount the bank is willing to lose from currency trading and is updated daily like a running scorecard - only Rusnak repeatedly changed his tally of losses without others realizing it, the indictment said.
He convinced workers in the bank's back office that they did not have to confirm some types of foreign currency trades, the indictment says. Rusnak made up spreadsheets of bogus trades that he told bank personnel he had entered in the VAR tally, further obscuring his real losses.
Rusnak also used third parties to cover his tracks, according to the indictment.
Millions of dollars were traded through prime brokerage accounts, or PBAs, with outside institutions, including Citibank, Bank of America and Merrill Lynch. Those PBAs allowed Rusnak to make trades without requiring them to be confirmed daily in Allfirst's ledger. The bank typically settled its PBA transactions with outside institutions just once a month.
Rusnak would amend, cancel or reverse those transactions before the monthly settlements to keep from being detected, even as his actual losses ballooned, the indictment says.
The indictment also details so-called "deep in the money" options that Rusnak allegedly used to keep his trading afloat. He sold such options to five institutions, gaining $300 million to offset borrowing to fund his trading losses. But those options also made Allfirst liable for $380 million when the contract options came due in a year. He changed bank records to conceal the massive liabilities, the indictment says.
Rusnak executed at least five such options, from Feb. 20, 2001, to Dec. 24, 2001. Premiums for the contracts ranged from $24 million to Deutsche Bank, due on Dec. 6, 2002, to $125 million due Citibank.
The Citibank option payment was due Feb. 20, 2002 - two weeks after Rusnak's bosses realized the extent of his activities and losses.