John M. Rusnak, the Baltimore trader believed responsible for a staggering $750 million loss at Allfirst Financial Inc., was earning six-figure bonuses that were tied to his international currency trades, sources said yesterday.
Also yesterday, former Comptroller of the Currency Eugene A. Ludwig was named by Allfirst's parent company to head an internal investigation into the enormous loss and how the bank's security system failed.
In addition, the Dublin, Ireland-based parent corporation, Allied Irish Banks PLC, confirmed that bonuses that were due to be paid last week to top executives of Allfirst have been withheld. The company gave no indication of when, or if, they will be paid, given the scandal.
Rusnak attempted to make profits for clients and the bank by trading in foreign currency -- betting that one currency, such as the dollar, would rise against others, such as the yen. But last year he began to suffer heavy losses.
As those losses mounted, the bank said, Rusnak tried to conceal them with a series of phony transactions.
In revealing the alleged fraud, one of the largest in banking history, Allfirst executives said only that Rusnak made $85,000 a year as a currency trader.
In addition to his salary, though, Rusnak received annual bonuses of about $200,000, which were partly tied to the profit his trades in foreign currency earned for Allfirst, sources said yesterday.
Those bonuses might have provided the motivation for the false trading allegedly conducted by Rusnak, banking sources said.
"When your income is tied to performance, that can lead people to do strange, inexplicable things," a Baltimore banker, who asked not to be named, said yesterday. "I don't know if bonuses were a motivation in this specific case, but you certainly can't rule it out." Allied Irish said it expects Ludwig to complete his investigation in no more than 30 days.
Allied Irish Chief Executive Michael Buckley yesterday accused Rusnak of being at the center of "a diligent and a devious fraud."
Speaking to the Irish national broadcaster RTE, Buckley said Rusnak's lawyers "have tried to give the impression that this was some sort of 'learner driver' who went out of control. This was a sophisticated fraud."
Ludwig, 56, was appointed by his friend, then-President Bill Clinton, in 1993 to a five-year term as comptroller of the currency, an independent bureau of the Treasury Department that regulates and investigates the lending practices of banks.
He is a Yale University graduate, lawyer, former Rhodes Scholar and served as vice president of Bankers Trust/Deutsche Bank from 1998 to 2000.
Ludwig is manager partner of Promontory Financial Group, a Washington consulting firm that specializes in banking and financial institutions.
"Mr. Ludwig is an eminent banking expert. We are extremely fortunate to have found a man of such skill and expertise, with great knowledge of the banking system, to head up our investigation," Allied Chairman Lochlann Quinn said.
The bank declined to disclose Ludwig's fee for leading the investigation.
Ludwig joins a growing list of those investigating the Allfirst scandal.
The FBI and U.S. attorney's office are reviewing Rusnak's activities, as are examiners from the state and the Federal Reserve Bank of Richmond.
Allied officials also declined yesterday to comment on any aspect of the investigation, which began a week ago when Susan C. Keating, Allfirst president and chief executive officer, learned that discrepancies had been found in Rusnak's trading record.
"We're not going to comment on anything that could be part of the investigation," said Catherine Burke, head of corporate relations for Allied.
The substance of the investigation findings will be publicized by the bank, except for proprietary corporate information, she said. "For everyone who wants to know the how and the why, it will be published," Burke said.
Allied officials did confirm a report in the Sunday Business Post of Dublin yesterday that annual bonuses for Allfirst's senior staff were withheld.
The payments were approved by the Allfirst board of directors last month, but were canceled after last week's revelations.
Criticism in the Irish media intensified yesterday over the scandal.
Earlier reports in Ireland's capital had ridiculed Rusnak, a 37-year-old Mount Washington resident, as "John Dough." He was also dubbed the "brogue trader," a takeoff on the so-called rogue traders who have been involved in other international investment scandals in recent memory.
But commentary turned yesterday more toward Allied, Ireland's largest bank, for apparent failure to closely monitor its trading overseas. Officials from the bank and the Irish and U.S. governments are investigating allegations that for perhaps as long as a year, Rusnak falsified trades to cover losses that amounted to $750 million.
"The problem at the bank is its culture -- a culture that has been too tolerant of whiz kids and too intolerant of whistle-blowers," wrote the Sunday Business Post.
"AIB: Does anyone know anything?" headlined a front-page column in another major paper, the Sunday Independent.
"If AIB cannot control the activities of a Mickey Mouse subsidiary in Maryland, should it not also withdraw from Poland now that its U.S. operation is shown up as a shambles?" wrote Sunday Independent columnist Shane Ross, referring to the bank's investments in the capitalization of the Polish economy.
The paper also printed a half-dozen letters from readers complaining about the bank's practices in exchanging their money for foreign currencies -- in response to an invitation issued by the newspaper before last week's scandal erupted.