After a four-month investigation, federal prosecutors are set to announce an indictment in the $691.2 million Allfirst Financial Inc. trading scandal, according to sources.
The Maryland U.S. attorney's office has scheduled a news conference at 2 p.m. today to announce a "major white-collar crime indictment."
Maryland U.S. Attorney Thomas M. DiBiagio declined to comment. But sources said the indictment is related to the Allfirst debacle.
From the outset, the investigation has focused on John M. Rusnak, an Allfirst currency trader who the bank says lost millions in one of the biggest bank scandals ever.
Rusnak's attorney, David B. Irwin, declined to comment when reached at home.
On Feb. 6, Allfirst and its parent, Allied Irish Banks PLC, which is based in Dublin, Ireland, revealed that the bank lost hundreds of millions through bad bets on currency trades. They blamed Rusnak and accused him of hiding the losses through fake documents and by skirting internal controls.
Rusnak was fired from Baltimore-based Allfirst along with six co-workers and supervisors who failed to detect the losses over a five-year period.
Those employees are: David M. Cronin, executive vice president and treasurer; Robert F. Ray, senior vice president of treasury funds management and Rusnak's immediate supervisor; Jan N. Palmer, senior vice president of investment operations; Larry Smith, a clerk in the bank's operations unit; Michael Husich, head of internal audit; and Lou Slifker, also with internal audit.
The bank has not suggested wrongdoing on their part.
Rusnak has cooperated with federal authorities, providing them with details of how Allfirst's foreign exchange unit worked, his activities and whether others inside the bank knew of them, sources have said.
Because of his cooperation, legal experts said, it is likely that authorities would seek a less severe sentence if he is convicted of, or pleads guilty to, fraud charges.
Shortly after the authorities began their investigation, there was speculation that the case against Rusnak might not go before a grand jury and that he would be charged through a criminal information.
Charges filed through a criminal information usually mean a defendant has agreed to cooperate with federal authorities and will plead guilty.
Instead, federal prosecutors appear to have presented the case to a grand jury, which gives them a base of information to use if they want to bring additional charges against other individuals.
Rusnak, who is married and has two small children, attended church regularly and sat on a parochial school board.
But at work, Rusnak could "bully" subordinates, according to a report by Eugene Ludwig, the former U.S. comptroller of the currency, who was hired by the bank to investigate the loss.
Rusnak was able to override a standard control employed by banks that operate trading desks - the trade confirmation, the report said. Every trade was supposed to be confirmed by someone in the bank's back office who worked independently from the trader.
"But Mr. Rusnak was somehow able to bully or to cajole the operations staffer responsible for confirming Mr. Rusnak's trades into not confirming all of them," the report said.
Allfirst's massive loss has prompted shareholders to file lawsuits.
A Maryland firm that owns stock in Allfirst's parent sued the bank's directors and senior officers last month, alleging they ignored warnings as early as 1995 that allowed the losses to mount.
Tomran Inc., which owns 4,800 shares of Allied Irish and is an Allfirst depositor, wants a jury to decide whether the 15 directors and officers of the bank should pay back Allfirst for the losses.
The "derivative" lawsuit, filed in Baltimore City Circuit Court, alleges that bank executives and directors failed to heed warnings and "red flags" from regulators, the bank's own risk assessment analyst and individuals who did business with Allfirst and Allied.
"There were repeated warnings to the bank's board and to senior management that internal controls were not in place, or were not functioning properly," the lawsuit stated. "These red flags were consistently ignored."
Philip H. Hosmer, a spokesman for Allfirst, said: "We believe the suit is without merit, and we are going to defend against it vigorously. Beyond that we can't discuss pending litigation."
The lawsuit names Allfirst executives and directors that include Frank P. Bramble, Allfirst's former chairman; Susan C. Keating, chief executive officer; and Cronin, the fired treasurer.
The Maryland U.S. attorney's office has scheduled a news conference at 2 p.m. today to announce a "major white-collar crime indictment."
Maryland U.S. Attorney Thomas M. DiBiagio declined to comment. But sources said the indictment is related to the Allfirst debacle.
From the outset, the investigation has focused on John M. Rusnak, an Allfirst currency trader who the bank says lost millions in one of the biggest bank scandals ever.
Rusnak's attorney, David B. Irwin, declined to comment when reached at home.
On Feb. 6, Allfirst and its parent, Allied Irish Banks PLC, which is based in Dublin, Ireland, revealed that the bank lost hundreds of millions through bad bets on currency trades. They blamed Rusnak and accused him of hiding the losses through fake documents and by skirting internal controls.
Rusnak was fired from Baltimore-based Allfirst along with six co-workers and supervisors who failed to detect the losses over a five-year period.
Those employees are: David M. Cronin, executive vice president and treasurer; Robert F. Ray, senior vice president of treasury funds management and Rusnak's immediate supervisor; Jan N. Palmer, senior vice president of investment operations; Larry Smith, a clerk in the bank's operations unit; Michael Husich, head of internal audit; and Lou Slifker, also with internal audit.
The bank has not suggested wrongdoing on their part.
Rusnak has cooperated with federal authorities, providing them with details of how Allfirst's foreign exchange unit worked, his activities and whether others inside the bank knew of them, sources have said.
Because of his cooperation, legal experts said, it is likely that authorities would seek a less severe sentence if he is convicted of, or pleads guilty to, fraud charges.
Shortly after the authorities began their investigation, there was speculation that the case against Rusnak might not go before a grand jury and that he would be charged through a criminal information.
Charges filed through a criminal information usually mean a defendant has agreed to cooperate with federal authorities and will plead guilty.
Instead, federal prosecutors appear to have presented the case to a grand jury, which gives them a base of information to use if they want to bring additional charges against other individuals.
Rusnak, who is married and has two small children, attended church regularly and sat on a parochial school board.
But at work, Rusnak could "bully" subordinates, according to a report by Eugene Ludwig, the former U.S. comptroller of the currency, who was hired by the bank to investigate the loss.
Rusnak was able to override a standard control employed by banks that operate trading desks - the trade confirmation, the report said. Every trade was supposed to be confirmed by someone in the bank's back office who worked independently from the trader.
"But Mr. Rusnak was somehow able to bully or to cajole the operations staffer responsible for confirming Mr. Rusnak's trades into not confirming all of them," the report said.
Allfirst's massive loss has prompted shareholders to file lawsuits.
A Maryland firm that owns stock in Allfirst's parent sued the bank's directors and senior officers last month, alleging they ignored warnings as early as 1995 that allowed the losses to mount.
Tomran Inc., which owns 4,800 shares of Allied Irish and is an Allfirst depositor, wants a jury to decide whether the 15 directors and officers of the bank should pay back Allfirst for the losses.
The "derivative" lawsuit, filed in Baltimore City Circuit Court, alleges that bank executives and directors failed to heed warnings and "red flags" from regulators, the bank's own risk assessment analyst and individuals who did business with Allfirst and Allied.
"There were repeated warnings to the bank's board and to senior management that internal controls were not in place, or were not functioning properly," the lawsuit stated. "These red flags were consistently ignored."
Philip H. Hosmer, a spokesman for Allfirst, said: "We believe the suit is without merit, and we are going to defend against it vigorously. Beyond that we can't discuss pending litigation."
The lawsuit names Allfirst executives and directors that include Frank P. Bramble, Allfirst's former chairman; Susan C. Keating, chief executive officer; and Cronin, the fired treasurer.