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John Rusnak

When your trading gets the FBI after you, you know you have taken a wrong turn. Hundreds of millions invested into yen that won’t soon be forgotten. This is John Rusnak’s story.

 

John Rusnak was a trader for Allfirst bank in Maryland in 1995 working in their foreign exchange trade division. Despite having only moderate success, he was once featured in the newspaper. He made a show of stopping the interview to make profitable trades, possibly to make himself look like more of a bigshot. In reality, he was paid modestly, barely supporting his family.

 

Rusnak was a junior dealer at Allfirst, and had a trading limit of $2.5 million. The leaders of the bank were first worried when John requested more money for his trading. This caused them to tell Rusnak to cut back his trading budget.

 

It was worse than it looked. Rusnak had actually speculated with $7.5 billion. He was speculating on the Japanese yen, betting it would gain ground versus the USD. The opposite happened, the USD gained 10% vs the Yen. This is what broke Allfirst, though the true extent of the damage was not obvious

 

It appeared Rusnak had set up options contracts to hedge his bets. These were actually fabricated, meaning the losses had nothing mitigating them. They discovered these false options after routine inspections, causing the bank to be quite shocked.

 

Rusnak initially worked with authorities during the investigation. Later he stopped answering his phone and disappeared. This brought the FBI in to investigate, as well as the CEO of another bank recruited to assess the level of damage at Allfirst.

 

Soon it was announced that Allied Irish Banks (“AIG”, the parent company of Allfirst) would have to write off $750 million. Rusnak himself was directly linked to the loss of $691 million, which he would have to work towards paying back, depending on his earnings after prison.

 

This is one of the biggest rogue trader disasters in history. It was a terrible move by John Rusnak and the $691 million debt will serve as a stark reminder.

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