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.
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John Rusnak was a trader for Allfirst Bank in Maryland in 1995, working in their foreign exchange trade division. At the time, he was a moderately successful trader. Despite that, a newspaper decided to feature him. 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 received a moderate salary, barely supporting his family.
John Rusnak’s Unauthorized Trades
John 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. John 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 John Rusnak had set up options contracts to hedge his bets. These were actually fake. That meant the losses had nothing mitigating them. It was quite shocking for the bank to discover these false options. They found them during some routine inspections.
Rusnak initially worked with authorities during the investigation. Later he stopped answering his phone and disappeared. This brought the FBI in to investigate, and the CEO of another bank was recruited to assess the level of damage at Allfirst.
Aftermath
Soon they announced that Allied Irish Banks (“AIG,” the parent company of Allfirst) would have to write off $750 million. John Rusnak himself was directly linked to the loss of $691 million. He would later have to work towards paying it 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.
