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In prison, rogue trader pursues humility

THE BALTIMORE SUN

HAZELTON, W.Va. - John M. Rusnak teaches personal finance to his fellow inmates at the federal prison here in the Allegheny Mountains.

"I guess," the man convicted of one of the largest banking scandals in history said with a chuckle, "that is kind of ironic."

Laughing at ironies might come more easily these days to Rusnak in prison, as ironic as that might seem.

He lost $691 million over five years as a currency trader for Allfirst Financial Inc. and schemed to cover it up. The crime, which surfaced in 2002, led to the sale of the Baltimore-based bank and put 1,100 of his fellow employees out of work.

He consented last month to his first interview since his incarceration two years ago after pleading guilty to one count of bank fraud.

He isn't due to be released until 2010 under a 7 1/2 -year sentence and was moved recently to the new Hazelton prison camp a few miles west of Maryland in West Virginia. The minimum-security facility sits on strip-mined land below a more imposing penitentiary ringed by barbed wire.

In the visiting room, Rusnak reflected on life in prison and his future out of it and retraced his descent in the high-stakes world of currency trading.

"Even though I'm in prison, I feel relieved to be away from that," said Rusnak, in a drab-green jumpsuit, hands folded in his lap. "I feel 20 years younger being away from the pressure. There was an atmosphere of corruption that, when I look back on it, it makes me sick."

The 40-year-old looks grayer and thinner than the pudgy, baby-faced man who told a federal judge in Baltimore in January 2003 that he was "very, very sorry" for what he had done. He has lost much of the 50 pounds he put on at Allfirst - stress-induced, he said. He also comes off as self-deprecating, in contrast to the arrogant man he admits he once was.

He responded last month to a written request from The Sun to talk after two years of silence, including turning down several earlier requests for an interview. He agreed to do so against the advice of his attorney, David Norman. He declined, however, to be photographed.

He had "an overwhelming desire to tell people what was in my mind and in my heart," he said. He felt he had earlier missed an opportunity to tell people "that I realize the magnitude of the crime and how much it has hurt people."

Norman said Rusnak's "personal situation is not furthered by discussing it with the press, and that is what I advised him."

Focus on self

Rusnak eschews questions about whether anyone else was involved or aware of his scheme at Allfirst. He made statements that seemed to implicate a broader cast of characters, but he refused to clarify them.

"I've had time to think about everything that happened, and it's best for me and best for my rehabilitation if I focus on what I did and not on the actions of others," Rusnak said.

"If I focus on my deception and my errors, I can accept responsibility for them. Hopefully, that's going to bring about some humility that I lacked in the past and might result in me being a better father, husband and member of society."

In a brief telephone interview, Rusnak's wife, Linda, said she, her husband and their two children are "still trying to be a family" with regular prison visits.

"He's moved on, and hopefully everyone else has, too," she said. "He's a very smart man, and he's got a lot to give."

In prison, Rusnak says, he is trying to spend his time "fruitfully," going to Bible study and exercising. He also teaches a high-school equivalency class to inmates and a course designed to help them better budget their money and understand finance.

With library privileges, he can read the latest business news in national magazines and newspapers. Given what he felt were bottom-line pressures on him to deceive, he said, he isn't surprised by the extent of the scandals across corporate America.

Rusnak lost millions for Allfirst by incorrectly gauging the movement of the Japanese yen against the dollar, then forged paperwork to cover further trades and losses he says he incurred in a failed attempt to win the money back.

After Allfirst announced it had discovered Rusnak's fraud in February 2002, several top officers left or were fired. By that fall, one of Ireland's largest banks, Allied Irish Banks PLC, sold its majority interest in Allfirst to M&T; Bank Corp. of Buffalo, N.Y., for $3.1 billion in cash and stock. M&T; ordered layoffs, mostly in Maryland.

Allfirst had hired Rusnak away from Chemical Bank in New York in 1993. Some at Allfirst found him to be a hard-working family man. Others said he was abusive and bullied co-workers who questioned him, according to a report by Eugene A. Ludwig. Allied Irish hired Ludwig, a former U.S. comptroller of the currency, to investigate and help quell the scandal.

"I was very self-assured, always thought I had the right answers," Rusnak recalled. "The bank hierarchy worked on intimidation, and people being berated was standard practice in the trading room. It's a very tense, pressurized job with incredibly high demands."

A dual personality

Rusnak's criminal attorney, David Irwin, acknowledged his client's "dual personality." Outside the bank, Rusnak regularly attended Mount Washington's Shrine of the Sacred Heart Catholic Church and sat on his children's school board. Few people in his personal life would have believed he had "an alter ego as an out-of-control trader," Irwin said.

Rusnak took "substantial losses" in his trading portfolio beginning in 1997, according to Ludwig's report. Rusnak masked his losses by creating fictitious trades that made it appear his bad bets were hedged. He took ever bolder steps to perpetuate the scheme, at one point creating a file on his computer named "fake docs" to store counterfeit records.

The bogus profits he reported helped him earn more than $325,000 in bonuses.

"The operation I ran for the bank lost a lot of money, and there was a reluctance to report those losses, and so I devised ways to keep from reporting those losses," Rusnak said.

Increasingly, he felt trapped by his lies. He saw no alternative to playing the markets in hopes of a big payoff. He knew he seemed "off-kilter" to his family but couldn't reveal why.

"It really ate away at me. I was fat as a house, and I was very angry about the job," he said. "It was so hard on my whole family. There was no logical reason for me to be upset and so irrational, complaining about my situation and working continuously."

His friends didn't all sense the anguish consuming him.

Free beer and anger

Peter Kimos, owner of Peter's Pour House, a pub in a cobblestoned alley downtown that was an after-hours watering hole for many Allfirst employees, thought of Rusnak as "fun-loving" and "unpretentious."

"If John Rusnak walked in the door today, I would buy him a beer - and tell him how angry I am," said Kimos, whose business has suffered some since the Allfirst layoffs. "But I would still buy him a beer."

Citibank and Bank of America occasionally picked up the tab at Peter's when they had a large deal with Allfirst, Rusnak recalled. After the scandal broke, Citibank fired two employees in connection with it.

Rusnak said he set up brokerage accounts with the two banks to outsource the processing of trades, credit and financing. Those accounts "gave the trading operation a lot more freedom to operate without scrutiny," he said.

Spokeswomen for Citibank and Bank of America declined to comment.

According to Ludwig's report, Rusnak liked to be "wined and dined" and got free golf trips and Super Bowl tickets from brokerages. Rusnak said he could have afforded the perks on his own.

Besides, he said, "It's not like I had a birthday party in Sardinia," referring to the $2 million bash on an Italian island that a former Tyco International Ltd. executive is alleged, in a fraud case against him, to have thrown for his wife.

Rusnak anticipated going to prison a full year before he was caught, he said, but he couldn't bring himself to confess as he "wallowed in my own mire." Losses mushroomed with the brokerage accounts, which enabled him to execute four transactions worth $1.6 billion on a single day in May 2001.

Cleaned out his desk

Nine months later, on a Friday afternoon, Rusnak packed up belongings at his office and left, knowing he wouldn't be returning. His bosses had shut his trading operation, and others at the bank were questioning him about trade confirmations they had discovered were fishy.

A week later, Rusnak was to have received a $220,000 bonus.

Rusnak said he confessed that Sunday to his wife, Linda, whose father is a Protestant minister. "She has a very strong faith and understands forgiveness," he said, adding that she was relieved to have an explanation for his odd behavior. "She was instrumental in me taking responsibility for what I did."

Rusnak retained Irwin as his lawyer and met with him and two agents from the Federal Bureau of Investigation early that week to "express a willingness to accept responsibility." He said a bank official telephoned Linda Rusnak at home; she said her husband was out meeting with a lawyer.

The next day, Feb. 6, 2002, the bank went public with news of huge losses caused by a "rogue" trader. At a news conference in Dublin, Allied Irish Chief Executive Michael Buckley said the company had suffered "a heavy blow but not a fatal one." He said Rusnak had "legged it," or fled, in Irish slang.

Though he faced a major felony charge, Rusnak was insulted that the bank described him then as a fugitive and later as "devious," in Ludwig's report. He was relieved, however, that the jig was up, he said, and "felt it was important for my own salvation that I start to be honest."

Six of Rusnak's co-workers were fired, including his direct supervisor, Robert F. Ray, and Treasurer David M. Cronin. The scandal sent the stock price reeling 16 percent the first day, although the stock regained the lost ground in six weeks. Allfirst was forced to restate earnings for the previous four years.

Allied Irish officials declined to comment. Rusnak "can say what he wants," said company attorney Robert Mazur.

Thinking about a job

Rusnak said friends and family have forgiven him, yet he was still taken aback recently by a sympathetic letter that a former co-worker on the Allfirst trading desk sent him in prison. "Amazingly, he has forgiven me despite the effect it's had on his life."

Although he is barred from working at banks and other federally insured financial institutions under his plea agreement, Rusnak said friends have offered to help him find a job when he gets out. He must repay Allfirst $1,000 a month for five years upon his release. Shareholder lawsuits also seek money from Rusnak, Allied Irish and bank executives.

He can already envision a life after prison: "I'm definitely staying in Baltimore. I'm going to return and keep my head high, but I'm not going to return the way I left. I'm doing my best to strip away the arrogance and conceit and return with humility and gratitude."

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