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Lax management
Bud news, in detail; Etigtne A. Ludwig, former U.S.
comptroller of the currency, discusses the AUfint scandaL
                                                                   blamed at Allfirst
                                                                                                    'Human failings,1
                     "A bad decision cost kirn his life                                             lira/on rogur trader              More inside
                and all the promise that his Itfe held."                                            arc cited in report               ShortflD: Chairman
                                                                                                                                      Bramble was cleared In
                                                                                                    Ludwig outlines changes           the currency debacle,
                                                                                                                                      but he'll depart with
                                                                                                                                      goals unmet. [Page BA]
                                                                                                    Chairman gets OK
                                                                                                                                      Downfall: Treasurer
                                                                                                    to retire, CEO stays,             Cronln was called a key
                                                                                                    seven others fired                weak link. [Pages*]

                                                                                                     '.i AKDRZW RATNKH

                                                                                                       DUBLIN. Ireland — A re-
                                                                                                    port Into the trading scandal
                                                                                                    that tarnished Allflrst Finan-
                                                                                                    cial Inc. of Baltimore painted
                                                                                                                                      Chance
                                                                                                    a damning picture yesterday
                                                                                                    of a bank shop rife with lax
                                                                                                    management and verbal
                                                                                                    abuse and a JeKyll- and -Hyde
                                                                                                    trader who was so brazen he
                                                                                                                                      exposed
                                                                                                                                      trader's
                                                                                                    created a computer Die titled
                                                                                                    fake docs" to store his de-
                                                                                                    ceptions.
                                                                                                      The report by former
                                                                                                    Comptroller of the Currency
                                                                                                    EugeneA Ludwig didn't hold


Grieving: Dundalk High School students Neena Avent (from Itfl), Kelly Bernstein and
Charlent Ballon mourn Derrick Breedloue'3 eitnih. (Article. Page It)
                                                                                                    many surprise*, but It did put
                                                                                                    Uie blame for Uie rogue trad-
                                                                                                    Ing that cost the bank 1691.2
                                                                                                    million no higher than middle
                                                                                                    management. Including the
                                                                                                    trader at the center of the
                                                                                                                                      scheme
Question for Mends,
                                                                                                    storm. John M. Rusnak
                                                                                                       Ludwig delivered ttie re-
                                                                                                    port to the Irish stock ex-       Allfirst report says
                                                                                                    change at 7 a.m. 12 a n . F.ST'
                                                                                                    yesterday and four hours          laziness, deceit led

family of teen: 'Why?'                                                                              later to a news conference
                                                                                                    with 200 journalists In the
                                                                                                    blond wood-paneled audlto-
                                                                                                    hum at the headquarters of
                                                                                                    Allied Irish Banks PLC, the
                                                                                                    parent company of Allflrst.
                                                                                                                                      to SG91.2 million loss



                                                                                                       "It was as much a set of hu-
                                                                                                    man tragedies as I've ever
• Student: Mans mount-                                                                              seen." said Ludwig, sitting In     11. was Happenstance that
ing Itu tl«till atmi/i/lr. to                                                                       a private office atop AUled's   led to John M. Rusnak's u::-
                                                                                                    headquarters here before        doing at Allflrst Financial
reconcile tlie laltuited                                                                                                               His nve-year currency
atfitete Ifiep kneir tritfi                                                                         Washington after the session trading scheme didn't begin
                                                                                                    with the press.                 ummvellnR Because of the
the poutfi irho ro66«/a                                                                                Hi£ report detailed dozens bank's star: of auditors or
                                                                                                    of changes that Allied Irish risk managers, a report re-
liquor store.                                                                                       and Alinrst should make to leased yesterday said. Out be-
                                                                                                    shore up their treasury oper- cause a supervisor glanced
                                                                                                    ations. They Included;          down and saw two trading
                                                                                                       • Terminating all propri- tickets that didn't make
                                                                                                    etary trading at Allflrst and sense.
                                                                                                    relocating customer trading        This Is a corporate mug-
                                                                                                    activities to Allled's New ging; the mugger was Rus-
   Trie kids of Turner* Sta-                                                                        York branch.                    nak." said Eugene A. Ludwig.
tion looked up to Uie Derrick                                                                          • Requiring traders to former U.S. comptroller of
Sreedlove they knew — the                                                                           function in a group to avoid the currency, who conducted
footbaD sUr with Uie winning     Not "a monster": Dundalk coach Eric Webber (lefl) and              "lone wolves."                  a monthlong internal Investi-
                 smile and       counselor 0. Scott Kllpatriek discuss Derrick BreedJove.              • Using more "stress test- gation Into the looses at the
                 th« full ride                                                                      ing and scenario analysts" to request of AUfirsi's parent,
                 to college.     liquor store, a paper bag of      "But.* she added quickly,        gauge risk In currency portfo- Dublin-based Allied Irish
                 the guy wtio    money tn one hand, a pellet       -you don't know what's In-       lios.                           Banks PLC.
                 wrote po-       gun In the other. Breedlove.      side somebody, their heart,         • Confirming all trades Im-     Ludwlg's 57-page report
                 ems to the      17, was shot by a store clerk     their mind. I look at him like   mediately.                      lays out a tale at incompe-
                 pretty glils    as he tried to rob the place.     this — he paid tbe conse-           • Ensuring that top execu- tence, laziness und deceit
                 In school.      Police say he was the ring-       quences.                         tives of Allied Irish take full leading to $991.2 million In
                         high    leader In a string of robberies      "LKlle Hda were comln;        responsibility for Uie trading losses for the bank. The re-
                 school se-      at that store — and possibly      Into the       [Sec Teen. 11*    activities    [SeeAllflnl. 8* port shows how the table was
                                 others. This Ume. he is be-                                                                        set for the scheme in July
Page 8A: Friday. March 15,2002: The Sun



Ludwig's report finds scandal
had roots in 'human tragedies'
lAllflTstJram Page IA                    banks and altering computer Infor-       that we had the controls. The two
                                          mation before others saw It to           people senior to Rusnok went to
 of the bank.                             mask his losses. Ludwlg said.            sleep and the controls were not ap-
      Mury Louise Preis, Maryland's           The hoEU-j confirmations v           plied," said Qulnn. the Allied chair-
 commissioner of nnandal regula-          prepared on Rusnak's home com-           man, referring to Cronln and Ray.
 tion, sold state regulators have a       puter In a file called "fake docs,"          "I felt absolutely betrayed by
 copy of the report and are compar-       the Investigation found.                 someone In a senior position."
 ing it with their own investigation.         The FBI is still Investigating          ickley said of his contact lost
 State bank examiners are still           whether Rusnak should be                 ycarwith Cronln
 probing bank records, she said.          charged criminally. Bank rcgula-             "If every time a manager was
     The slate will continue to moni-     tors from the U.S., Maryland and         asked a question and we had to
 tor Allfirsi and will make sure the      Irish governments are also con-          bring In an external auditor to
 bank addresses Its problems.             tlnulng their reviews of potential       check It out, we wouldn't get be-
     "I think there were substantial      banking violations.                      yond two questions a day," Qulnn
 control failures." Prels said. I.ud-         The report portrays him with         said. The reason that Mr. Cronln
 wlg's briefing, which ran two hours,     two sides: As an honorable family        Is no longer with us Is because of
 drew sharp questions about the           man, church-goer and community           this."
 actions the board announced              volunteer, but also with an inflated         Cronln declined to comment,
     Allflrsl Chairman Prank P.           ego and a reputation for verbally            Sun ita/f writers Michael
 Bramble was given permission to          abusing co-workers who ques-             James and WHtiwn Patalon III News briefing: Allied Irish Banks Chief Executive Michael Buckley (lefl), AIB Group Chairman Lochlai
 retire June 1. The bank said he was      tloned his trade activities, which       contributed to this article.          Quinn and Eugene A. Ludurig tell the prejiaboutresults of the invetttgation.
 fulfilling earllerplans to retire.       often Involved wagering an the
      This report has confirmed           fluctuations of the value of U.S. .                                              _   __    .....          _..                           ... . _ _ _ . . _    _               ._.     __
 that Fmnk Bramble had no In-             dollar against the Japanese yen.
 volvement In or knowledge of the             •It was extraordinary,'' Ludwig
 Improper conduct." an Allied
 statement said.
     Susan C. Keating retained her
 position as chief executive officer.
 She will have a new boss: Eugene
                                          said. "It was such a long period of
                                          such vigorous manipulation, I have
                                          slve. But he lost money the old
                                          fashioned way: He bet wrong. If
                                                                                   Trader's scheme unveiled by chance, report says
 Sheeny, credited with building Al-       he'd only thought, 'If 1 did the op-
 llcd's successful retail bank opera-     posite....'"                             [Rusnak. from Page                          Rusnak was able to moke ex-                                                       If they would have sampled
 tion through Ireland, will become            There were tons of trades I'd                                                tremely large trades because he                                                  more, the report shows, they al-
 chief executive officer of AIB USA       never seen before." said Duncan          because he portrayed himself as an      set up agreements with big money-                                                most certainly would have uncov-
 Dlvlilon anil executive chairman-        Hcnncs, once a trading supervisor        experienced trader who could            center banks. The accounts, called                                               ered Rusn.ik's scheme. The rea-
 designate of Allflrst. Sheehy was In     at the former Bankers Trust and          moke money for the bank, the re-        prime brokerage accounts, "effec-                                                son: "Roughly 50 percent of the 83
 the United States yesterday at an        now a Ludwig associate who as-           port said. Rusnaksald he would do       tively permitted Allfirsi to make                                                foreign exchange options on the
Allied bank ribbon-cutting, bank          sisted in the Inquiry. 'It took a lot    so by using options to make so-         trades In the prime brokers'                                                     books at that time were bogus."
 officials said                           of head-scratching to wonder why         phisticated currency bets.                                                                                               thereportsald.
     Some analysts were surprised         name of these trades were made."             Cronln, a former currency               Such arrangements were un-                                                      In fact, the report shows that
 that the two top officers were not           David B. Irwln, Rusnak's at', or-    trader from Allied Irish, had big       usual for a small trading operation                                              Rusnak largely operated on bis
 dismissed, given the size and dura-                                               plans for currency trading at           like AllOjit's. Using them, Rusnak                                               awn. The company did not tape his
tion of the bank's tosses.                wlg's report, but said: 'Our focus Is    Allflrsl. He wanted to make the         became a voracious trader. He                                                    phone line, a standard procedure
     A Dublin bnnklnfC analyst, who       necessarily on the continuing and        smaller bank a major "niche"            traded at nlgbl uml from hUs home                                                on many tradlngfloors.
follows AIB said he expects Keat-         deliberate Investigation of the FBI      player In a global market.              In Mount Washington. He traded                                                      In addition, Rusnak's direct su-
ing to ultimately be removed "At          and the U.S. attorney's office for          Rusnak seemed to fit In well at      while on vacation, which the report                                              pervisors, Ray and Cronln, "failed
 the end of the day, the buck stops       the District ofMaryland."                Allflrst, Some saw him as "strong       noted Is prohibited In most trading      Eugene A. Ludwig: -Thtsiso              to examine In any depth Mr. Rus-
with the chief executive." said the           Cronln was perhaps the most          and confident." a "good family          operations because It provides an        corporate mugging; the mugger           nak's positions and trades."
analyst, who requested anonymity.         tragic figure In the episode, ac-        man." the report sold, though oth-      opportunity for a trader to perpe-       was Rusnak."                               The beginning of the end, the re-
'It's not Insignificant what hap-         cording to the report.                   ers viewed him as "arrogant and         trate continuing fraud.                                                          port said, came In early December
pened here. In fact. It's very signifi-       He knew trading as a former          abusive."                                                                            Rusnak traded so heavily that when the back-office supervisor
 cant."                                   currency trader (or Allied In Lon-           Rusnsk's methods of trading         'Wined and dined'                        on a single day in May 2001. he "ex- stumbled upon the two trading
     But with Bramble leaving, It         don and worked for the Central           turned out to be simpler than he            The heavy trading made Rus-          ecuted four transactions — two tickets on the desk. Neither had
was Important that Keating re-            Bank of Ireland. After Allied sent       had portrayed, the report said. He      nak a celebrity of sorts among bro-      with Citibank and two with Bank confirmations                     attached,
main In her post for a smooth tran-       him to the United States In 1S8S.        made straightforward bets on the        kerage houses that wanted to do          of America — that Involved a total prompting the supervisor to order
sition and to keep Allflrst's cus-        Allflrsl bankers considered him "a       direction of the yen and began run-     business with him.                       of about (1.6 billion In notional the back-office employee to get
tomers calm, the analyst said. But        spy from headquarters," while Al-        ning up losses when some of the             The broken and traders               value," the report Hold,                them from Rusnak. He apparently
Michael Buckley, chief executive          lied executives thought of him ox        bets turned out to be wrong.            heavily entertained Mr. Rusnak           Avoldiiig exposure                      did not follow through.
 officer or Allied Irish, said Keating    "thelrmanlntheU.S."                         After sustaining heavy losses        with meals, hotel stays, golf trips.                                                In January, Cronln, who had re-
was not culpable because trading              Alllcd Irish executives reacted      around 1997. Rusnak began to dis-       Super Bowl tickets and other                 Such heavy trading should turned from a vacation in Ireland,
was only a fraction of the responsi-      harshly to Cronln and Robert             guise them by using fictitious op-      travel," the report said. "He appar-     have alerted Rusnak's superiors to noticed wild fluctuations In the
bilities she aiiaumed only 18             Rays rale In the scandal                 tion trades that appeared to hedge      ently liked to be wined and dined,       potential problems, the report amount of net onsets Allfirst had
months ago.                                   The really annoying part Is          hlsbets, thereportsald.                 and the brokers obliged."                said, but he was able to conceal with respect to foreign exchange
     ~I don't wont to be an apologist                                                                                                                               losses through a number of strata- trading.
for her, but it is responsible of the                                                                                                                               gems and lack of supervision.              At the end of the year, the
board In this case not to take hi                                                                                                                                       For one thing, his trading man- amount listed on Allflrst's balance
out," Ludwlg said.
     Several analysts agreed, saying
AUOrst might have wounded the
U.S. franchise If 11 lost both Dram-
hlc and Keating slmultuneoiUily.
                                          Bramble's retirement no sunny event                                                                                       ager left the bonk In the fall of 1999. sheet was $150 million, but by mid-
                                                                                                                                                                    From then on, his direct supervisor January It had spiked to well over
                                                                                                                                                                    was Ray, whose "knowledge of for- S200 million In a single day.
                                                                                                                                                                    eign exchange was limited." the re-
                                                                                                                                                                    port said.
                                                                                                                                                                                                               By mid-January, Cronln was
                                                                                                                                                                                                            considering shutting down Rus-
     'The markets were asking the                                                                                                                                       Ray devoted little time to over- nak'a trading, at least temporarily,
same question, 'What about Susnn                                                                                                                                    seeing the trading operations, the to see whether any problems
Keating?' but that misses the             Chairman Is absolved,                                                            Danlelson.                               report sold His time was devoted would surface. At the time. Ray
point." .v.id Ray KlnnellR, a univer-                                                                                          'He Is very bright and very tal-     Instead to his many other respon- told Cronln that It would cost
sity business professor In Dublin         but career is cut short                                                          ented and has the strong ability to      sibilities, which Included oversee- about $500.000 to close out Rus-
who wrote a book on banking con-                                                                                           get along with people," a strength       ing the bank's portfolio of Invest- nak's positions. Cronln told Lud-
trols. "Ludwlg's Job was to name                                                                                           top executives need to get different     ments nnd ensuring that 1U books wlifs Investigators that he decided
names and he didn't name hen."            By WILLIAM PATALON in                                                            factions to buy Into a single strat-     balanced at the end of every day.
     Seven other employees of             AND GDB G. SctrrcuzNTBB                                                          egy, Danlelson ttald.                                                            to wait a couple ofweeks.
Allflrst were dismissed — without                                                                                              At the same time, be sold.               Stunningly, Rusnak was able to         At a staff meeting on Jon. 28,
severance, the bank sold — as a re-                                                                                        Bramble often spoke of retiring          skirt one of the standard controls Cronln announced that Rusnak's
sult of Ludwljfs findings.                    To his closest friends, Allflrst                                             early, perhaps to teach college or       employed by banks or brokerage positions were being closed out.
     Allfiral Treasurer David M.          Financial Inc. Chairman Frank P.                                                 just tobewlth his family.                houses that operate trading desks          -That's It then?" Ray said.
Cronln and Rusnak's supervisor,           Bramble often talked about leav-                                                     Bramble set out on his own as a      — the trade confirmation. Every "We're continuing to close out ...
Robert Ray. were the highest-             ing the fast-paced world of busi-                                                consultant before rejoining Mary-        trade WHS supposed to be con- Rusnak's positions?"
ranking executives let go. Aside          ness at a relatively young age, pos-                                             land National Bank In 1983. as a         nrraed by someone In the bank's            When Cranin said yes, Ray pre-
from Rusr.nk himself, they were           sibly even to teach.                                                             vice president in the international      back office who worked Independ- dicted that Rusnak would quit.
the most heavily criticized figures           Bramble, S3, is getting his wish,                                            division. When the bank began to         ently from the trader.                    A couple of days later, the back-
In I.uiiwlii's assessment and by Al-      though perhaps not In the un-                                                    founder after a series of bad real           "But Mr. Rusnak was somehow office supervisor inquired whether
lied lop executives yesterday.            clouded atmosphere he might                                                      estate loans, he was named chief         able to bully or to cajole the opera- Rusnak was still trading. The em-
     Cronln and Ray missed enough         have desired. Allflrat's Dublin-                                                 operating officer under Lemer, the       tions staffer responsible for con- ployee said Rusnak had traded a
red flags to decorate downtown            based parent. Allied Irish Banks                                                 bank's largest shareholder, who          firming Mr. Rusnak'n trades Into small number of options and
Moscow because they were                  PLC. disclosed yesterday that the                                                had assumed control Six months           not confirming all of them," the re- showed his supervisor two deal
charmed. Impressed — and ulti-            Allflrst chairman will retire June 1.    Frank P. Bramble, head of               later, he became chief executive of-     port sold.                              tickets. Neither had confirmations
mately overmatched — by Rusnok                The announcement of Bram-            Allfirst Financial Inc., was found      ficer as Lemer stepped back from             He even persuaded a back-           attached.
and his International trade maneu-        ble's Impending departure accom-         htamtttsi in the trading scar.dal.      the day-to-day operation, a posi-        office employee that certain option
vers. Ludwlg said.                        panied the findings of an internal                                               tion he held until the takeover by       trades In Asia did not have to be 'Fake docs'
     Others who were Informed             AIB probe into SOQ1 million in           made him a great coalltlon-             NatlonsBank.                             confirmed, something the report            Reminded that every trade
Wednesday night that they arc be-         trading losses at Aliflrat. but at the   bullder, a necessary talent. But the        During his tenure as a top area      noted that the clerk might have needed a confirmation, the em-
ing fired were Allflrst treasury ex-      same time absolved him of blame.         move rankled among some within          banker. Bramble has meant a lot          found convenient. Because of the ployee reviewed UckeU Involving
ecutive Jan Palmer. Lawrence                  The Internal investigation con-      a bank that had a history of            to Baltimore because of his civic        time difference. confirmlniE Asian certain Asian options and discov-
Smith, whose responsibilities In-         ducted by Eugene A. Ludwlg "bos          grooming its own leaders by pro-        commitments. Bramble served on           trades would have required the ered 12 unconfirmed trades. By
cluded verifying Rusr.nk's trades;        confirmed that Frank Bramble             motlngfrom within.                      the University of Maryland Medi-         back office employee to be at work Feb. 1, Rusnak had left 12 written
and two Internal audit managers.          had no Involvement in or knowl-              "By and large, the employee         cal System Corp.'s board of direc-       In the middle of the night.             confirmations on the back- office
Michael Huslch and Lou SUfker.            edge of the Improper conduct that        base to this day remains skeptical      tors for eight years, the last four as       Rusnak also found ways to cir- employee's desk.
     The stunning loss — equal to         took place in AUfirsl's Treasury         of him," a former Allflrst executive                                             cumvent risk-control officers, who         The confirmations "looked bo-
half of Allled's profit for 2001 — will   unit (where currency trading took        sold.                                   Rapoport, the president and CEO          use a statistical model to help esti- gus," according to the report. An
also lead it to centralize greater        place]," the company sold In a               Prior to joining Allflrst, Bram-    ofthe University otMarylond Med-         mate the maximum range of loss a Investigation later revealed that
oversight of Its disparate banking        statement.                               ble was tapped by Cleveland ty-         ical System Corp., who also Is on        trader might suffer In a given port- Rusnak had created them on htn
properties in the United Kingdom,             According to AIB, Bramble had        coon Alfred Lerncr to help rescue a     AMrsl'a board ofdlrcctam.                folio. To calculate the risk, the con- home computer In a file called
the United States and Poland un-          privately told the Dublin bank that      teetering MNC Financial Inc., par-          Bramble stepped down as              trol officers needed access to cur- "fake docs."
der the home office. The boards of        he wanted to retire even before the      ent of Maryland National Bank,          chairman In December as part ot          rent foreign currency rates and to         When confronted about the bo-
the parent and subsidiary banks           losses were discovered                   the largest In the state. He took       the normal leadership changeover.        a listing of Rusnak's current hold- gus-looking confirmations, "Rus-
will be shuffled slightly to foster           ADursl snicl Bramble wan not         over in July 1991, at age 43. A year        "He has been a mentor to me.         ings.                                   nak became angry," the report
additional oversight, too.                available for an Interview yester-       and a half later, he presided over      and he was an outstanding chair-             But Rusnak falsified his hold- said. "He said he was making
     Allied Chairman Lochlonn             day.                                     the sale of MNC to NatlonsBank          man," said Rapoport. "He helped          ings, the report said, making It ap- money for the bonk, and that If the
Qulnn sold yesterday that he                  While Bramble was given a free       fornbout 51.4 billion.                  us over the past four years as we        pear that he held certain options back office continued to question
doubted the company would get             pass In the fiasco, executives who           As It stands now, the turn-         acquired four other hospitals. He        when he did not. He also made it everything he did. they would drive
hack much of the money loat to            know him acknowledge that he             around and sale of MNC will stand       was extremely analytic and Inci-         appear that the amount of the him to quit. Mr. Rusnak left the of-
Rusnak's trades.                          had yet to reach the level of suc-       as the high-water mark of Bram-         sive In helping us analyze business      bank's money he had at risk at any fice fora walk outside."
     Ludwlg sold AllQrst consti-          cess at Alifirst that he had been        ble's banking career.                   opportunities for the medical sys-       one time —his open currency posi-          Ray "warned that If Mr. Rusnak
tuted the "fourth worst banking           credited with at previous bonking            That's still quite an achieve-      tem to grow and strengthen Its fi-       tion — was smaller than it really left the bank, the loss of his profit-
scandal in world history" and was         lobfl.                                   ment for a Calvert Hall athlete who     nancial position.                                                                able trading would force Job cuts In
unlike any other he'd ever studied.           If not for the currency debacle,     worked his way to the top from en-          "He still serves on the board,           Thla was a "necessary step," the back office."
     "It was as much a set of human       with the momentum being                  try-level jobs, without benefit of a    and I value his participation and        the report cold, "because Mr. Rus-
tragedies as I've ever seen," Lud-        achieved In some of the bank's           college degree.                         his Judgment. ... I really consider                                                 It was Friday. Feb. 1. and the
                                                                                       Bramble's working life started      him an outstanding person In our         nak often had huge open positions oversea* trades could not be con-
wlg Bald. There was a human dy-           basic businesses, another year at                                                                                         notwithstanding his bogus option firmed until Sunday night, the re-
namic here that was unholy."              Allflrst's helm might have allowed       In 13GQ ;us an employee of C&P                                                   positions."
     Rusnak's superiors "weren't          him to leave there as a winner, too.     Telephone Co., emptying coins               Donald P. Hutchlnson, presi-                                                 port said. Rusnak promised to call
crooked," added Ludwlg. They re-          severalsourcessay.                       from pay telephones.                    dent of the Greater Baltimore                Rusnak woe able to get away the back-ofOcc employee and give
lied on the outward signs of an In-           But then the trading scandal             A year later, he joined First Na-   Committee, called Bramble "one of        with this because the risk-control him the phone number for the bro-
ward grace. I learned something           broke.                                   tional Bank of Maryland — prede-        the finest guys I've ever known, one     officers took some of the numbcni ker who arranged the trades. He
myself. To be a really good banker,           The numbers were really look-        cessor of Allflrst — as on audit        of the most honorable, one of the        they used In their statistical model never did.
you've got to be skeptical.''             ing better." said an obviously dis-      clerk, and In 196B he Jumped to         most thoughtful, decp-thlnklng           directly out of his computer. Many When Ruanak failed to appear at
     His 57-page report torched the       appointed executive who has              Maryland National Bank as an ac-        people."                                 of the numbers were false.              work tbe next Monday, Ray and
mismanagement In Allflrsfs trad-          worked with Bramble at several In-       counting clerk. By 1D77. Bramble            "While I can't predict where his         Even auditors were foiled.          the back-office manager reported
Ing department and painted an             stitutions.                              badrucn to assistant controller.        career will Uikc him ... he has ter-         In 1399. Internal auditors failed the transactions to Cronln. In one
even darker picture of Rusnak. 37.            Bramble joined First Maryland            Several more promotions had         rific skills and there are business      to take any samples of Rusnak's "final, but futile." effort to find Rufi-
of Mount Washington, than had             Bancorp — the forerunner of              followed when. In 197B. he Joined       leaders who have respect for him,"       transactions to see If they had nak and confirm the trades, Ray
emerged previously.                       Allfirst — as president and chief        bank consultants Danlelson Asso-        Hutchlnson said. "If he wonts to         been confirmed. In August 2000, and Cronln drove to Rusoak'E
     Rusnak engaged In "vigorous          executive officer In April 1094. He      ciates as an associate director,        continue to work. I'm sure that          they gampled only one of Ru.inak'B
manipulation" by creating False           was viewed as an executive whose         where he started a lifelong friend-     there'll be a role for turn In this      foreign currency option trades. It
confirmation slips from other             superb communication skills              ship with firm principal Arnold G.                                               turned out to be genuine.

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Allfirst scandal

  • 1. Lax management Bud news, in detail; Etigtne A. Ludwig, former U.S. comptroller of the currency, discusses the AUfint scandaL blamed at Allfirst 'Human failings,1 "A bad decision cost kirn his life lira/on rogur trader More inside and all the promise that his Itfe held." arc cited in report ShortflD: Chairman Bramble was cleared In Ludwig outlines changes the currency debacle, but he'll depart with goals unmet. [Page BA] Chairman gets OK Downfall: Treasurer to retire, CEO stays, Cronln was called a key seven others fired weak link. [Pages*] '.i AKDRZW RATNKH DUBLIN. Ireland — A re- port Into the trading scandal that tarnished Allflrst Finan- cial Inc. of Baltimore painted Chance a damning picture yesterday of a bank shop rife with lax management and verbal abuse and a JeKyll- and -Hyde trader who was so brazen he exposed trader's created a computer Die titled fake docs" to store his de- ceptions. The report by former Comptroller of the Currency EugeneA Ludwig didn't hold Grieving: Dundalk High School students Neena Avent (from Itfl), Kelly Bernstein and Charlent Ballon mourn Derrick Breedloue'3 eitnih. (Article. Page It) many surprise*, but It did put Uie blame for Uie rogue trad- Ing that cost the bank 1691.2 million no higher than middle management. Including the trader at the center of the scheme Question for Mends, storm. John M. Rusnak Ludwig delivered ttie re- port to the Irish stock ex- Allfirst report says change at 7 a.m. 12 a n . F.ST' yesterday and four hours laziness, deceit led family of teen: 'Why?' later to a news conference with 200 journalists In the blond wood-paneled audlto- hum at the headquarters of Allied Irish Banks PLC, the parent company of Allflrst. to SG91.2 million loss "It was as much a set of hu- man tragedies as I've ever • Student: Mans mount- seen." said Ludwig, sitting In 11. was Happenstance that ing Itu tl«till atmi/i/lr. to a private office atop AUled's led to John M. Rusnak's u::- headquarters here before doing at Allflrst Financial reconcile tlie laltuited His nve-year currency atfitete Ifiep kneir tritfi Washington after the session trading scheme didn't begin with the press. ummvellnR Because of the the poutfi irho ro66«/a Hi£ report detailed dozens bank's star: of auditors or of changes that Allied Irish risk managers, a report re- liquor store. and Alinrst should make to leased yesterday said. Out be- shore up their treasury oper- cause a supervisor glanced ations. They Included; down and saw two trading • Terminating all propri- tickets that didn't make etary trading at Allflrst and sense. relocating customer trading This Is a corporate mug- activities to Allled's New ging; the mugger was Rus- Trie kids of Turner* Sta- York branch. nak." said Eugene A. Ludwig. tion looked up to Uie Derrick • Requiring traders to former U.S. comptroller of Sreedlove they knew — the function in a group to avoid the currency, who conducted footbaD sUr with Uie winning Not "a monster": Dundalk coach Eric Webber (lefl) and "lone wolves." a monthlong internal Investi- smile and counselor 0. Scott Kllpatriek discuss Derrick BreedJove. • Using more "stress test- gation Into the looses at the th« full ride ing and scenario analysts" to request of AUfirsi's parent, to college. liquor store, a paper bag of "But.* she added quickly, gauge risk In currency portfo- Dublin-based Allied Irish the guy wtio money tn one hand, a pellet -you don't know what's In- lios. Banks PLC. wrote po- gun In the other. Breedlove. side somebody, their heart, • Confirming all trades Im- Ludwlg's 57-page report ems to the 17, was shot by a store clerk their mind. I look at him like mediately. lays out a tale at incompe- pretty glils as he tried to rob the place. this — he paid tbe conse- • Ensuring that top execu- tence, laziness und deceit In school. Police say he was the ring- quences. tives of Allied Irish take full leading to $991.2 million In high leader In a string of robberies "LKlle Hda were comln; responsibility for Uie trading losses for the bank. The re- school se- at that store — and possibly Into the [Sec Teen. 11* activities [SeeAllflnl. 8* port shows how the table was others. This Ume. he is be- set for the scheme in July
  • 2. Page 8A: Friday. March 15,2002: The Sun Ludwig's report finds scandal had roots in 'human tragedies' lAllflTstJram Page IA banks and altering computer Infor- that we had the controls. The two mation before others saw It to people senior to Rusnok went to of the bank. mask his losses. Ludwlg said. sleep and the controls were not ap- Mury Louise Preis, Maryland's The hoEU-j confirmations v plied," said Qulnn. the Allied chair- commissioner of nnandal regula- prepared on Rusnak's home com- man, referring to Cronln and Ray. tion, sold state regulators have a puter In a file called "fake docs," "I felt absolutely betrayed by copy of the report and are compar- the Investigation found. someone In a senior position." ing it with their own investigation. The FBI is still Investigating ickley said of his contact lost State bank examiners are still whether Rusnak should be ycarwith Cronln probing bank records, she said. charged criminally. Bank rcgula- "If every time a manager was The slate will continue to moni- tors from the U.S., Maryland and asked a question and we had to tor Allfirsi and will make sure the Irish governments are also con- bring In an external auditor to bank addresses Its problems. tlnulng their reviews of potential check It out, we wouldn't get be- "I think there were substantial banking violations. yond two questions a day," Qulnn control failures." Prels said. I.ud- The report portrays him with said. The reason that Mr. Cronln wlg's briefing, which ran two hours, two sides: As an honorable family Is no longer with us Is because of drew sharp questions about the man, church-goer and community this." actions the board announced volunteer, but also with an inflated Cronln declined to comment, Allflrsl Chairman Prank P. ego and a reputation for verbally Sun ita/f writers Michael Bramble was given permission to abusing co-workers who ques- James and WHtiwn Patalon III News briefing: Allied Irish Banks Chief Executive Michael Buckley (lefl), AIB Group Chairman Lochlai retire June 1. The bank said he was tloned his trade activities, which contributed to this article. Quinn and Eugene A. Ludurig tell the prejiaboutresults of the invetttgation. fulfilling earllerplans to retire. often Involved wagering an the This report has confirmed fluctuations of the value of U.S. . _ __ ..... _.. ... . _ _ _ . . _ _ ._. __ that Fmnk Bramble had no In- dollar against the Japanese yen. volvement In or knowledge of the •It was extraordinary,'' Ludwig Improper conduct." an Allied statement said. Susan C. Keating retained her position as chief executive officer. She will have a new boss: Eugene said. "It was such a long period of such vigorous manipulation, I have slve. But he lost money the old fashioned way: He bet wrong. If Trader's scheme unveiled by chance, report says Sheeny, credited with building Al- he'd only thought, 'If 1 did the op- llcd's successful retail bank opera- posite....'" [Rusnak. from Page Rusnak was able to moke ex- If they would have sampled tion through Ireland, will become There were tons of trades I'd tremely large trades because he more, the report shows, they al- chief executive officer of AIB USA never seen before." said Duncan because he portrayed himself as an set up agreements with big money- most certainly would have uncov- Dlvlilon anil executive chairman- Hcnncs, once a trading supervisor experienced trader who could center banks. The accounts, called ered Rusn.ik's scheme. The rea- designate of Allflrst. Sheehy was In at the former Bankers Trust and moke money for the bank, the re- prime brokerage accounts, "effec- son: "Roughly 50 percent of the 83 the United States yesterday at an now a Ludwig associate who as- port said. Rusnaksald he would do tively permitted Allfirsi to make foreign exchange options on the Allied bank ribbon-cutting, bank sisted in the Inquiry. 'It took a lot so by using options to make so- trades In the prime brokers' books at that time were bogus." officials said of head-scratching to wonder why phisticated currency bets. thereportsald. Some analysts were surprised name of these trades were made." Cronln, a former currency Such arrangements were un- In fact, the report shows that that the two top officers were not David B. Irwln, Rusnak's at', or- trader from Allied Irish, had big usual for a small trading operation Rusnak largely operated on bis dismissed, given the size and dura- plans for currency trading at like AllOjit's. Using them, Rusnak awn. The company did not tape his tion of the bank's tosses. wlg's report, but said: 'Our focus Is Allflrsl. He wanted to make the became a voracious trader. He phone line, a standard procedure A Dublin bnnklnfC analyst, who necessarily on the continuing and smaller bank a major "niche" traded at nlgbl uml from hUs home on many tradlngfloors. follows AIB said he expects Keat- deliberate Investigation of the FBI player In a global market. In Mount Washington. He traded In addition, Rusnak's direct su- ing to ultimately be removed "At and the U.S. attorney's office for Rusnak seemed to fit In well at while on vacation, which the report pervisors, Ray and Cronln, "failed the end of the day, the buck stops the District ofMaryland." Allflrst, Some saw him as "strong noted Is prohibited In most trading Eugene A. Ludwig: -Thtsiso to examine In any depth Mr. Rus- with the chief executive." said the Cronln was perhaps the most and confident." a "good family operations because It provides an corporate mugging; the mugger nak's positions and trades." analyst, who requested anonymity. tragic figure In the episode, ac- man." the report sold, though oth- opportunity for a trader to perpe- was Rusnak." The beginning of the end, the re- 'It's not Insignificant what hap- cording to the report. ers viewed him as "arrogant and trate continuing fraud. port said, came In early December pened here. In fact. It's very signifi- He knew trading as a former abusive." Rusnak traded so heavily that when the back-office supervisor cant." currency trader (or Allied In Lon- Rusnsk's methods of trading 'Wined and dined' on a single day in May 2001. he "ex- stumbled upon the two trading But with Bramble leaving, It don and worked for the Central turned out to be simpler than he The heavy trading made Rus- ecuted four transactions — two tickets on the desk. Neither had was Important that Keating re- Bank of Ireland. After Allied sent had portrayed, the report said. He nak a celebrity of sorts among bro- with Citibank and two with Bank confirmations attached, main In her post for a smooth tran- him to the United States In 1S8S. made straightforward bets on the kerage houses that wanted to do of America — that Involved a total prompting the supervisor to order sition and to keep Allflrst's cus- Allflrsl bankers considered him "a direction of the yen and began run- business with him. of about (1.6 billion In notional the back-office employee to get tomers calm, the analyst said. But spy from headquarters," while Al- ning up losses when some of the The broken and traders value," the report Hold, them from Rusnak. He apparently Michael Buckley, chief executive lied executives thought of him ox bets turned out to be wrong. heavily entertained Mr. Rusnak Avoldiiig exposure did not follow through. officer or Allied Irish, said Keating "thelrmanlntheU.S." After sustaining heavy losses with meals, hotel stays, golf trips. In January, Cronln, who had re- was not culpable because trading Alllcd Irish executives reacted around 1997. Rusnak began to dis- Super Bowl tickets and other Such heavy trading should turned from a vacation in Ireland, was only a fraction of the responsi- harshly to Cronln and Robert guise them by using fictitious op- travel," the report said. "He appar- have alerted Rusnak's superiors to noticed wild fluctuations In the bilities she aiiaumed only 18 Rays rale In the scandal tion trades that appeared to hedge ently liked to be wined and dined, potential problems, the report amount of net onsets Allfirst had months ago. The really annoying part Is hlsbets, thereportsald. and the brokers obliged." said, but he was able to conceal with respect to foreign exchange ~I don't wont to be an apologist losses through a number of strata- trading. for her, but it is responsible of the gems and lack of supervision. At the end of the year, the board In this case not to take hi For one thing, his trading man- amount listed on Allflrst's balance out," Ludwlg said. Several analysts agreed, saying AUOrst might have wounded the U.S. franchise If 11 lost both Dram- hlc and Keating slmultuneoiUily. Bramble's retirement no sunny event ager left the bonk In the fall of 1999. sheet was $150 million, but by mid- From then on, his direct supervisor January It had spiked to well over was Ray, whose "knowledge of for- S200 million In a single day. eign exchange was limited." the re- port said. By mid-January, Cronln was considering shutting down Rus- 'The markets were asking the Ray devoted little time to over- nak'a trading, at least temporarily, same question, 'What about Susnn seeing the trading operations, the to see whether any problems Keating?' but that misses the Chairman Is absolved, Danlelson. report sold His time was devoted would surface. At the time. Ray point." .v.id Ray KlnnellR, a univer- 'He Is very bright and very tal- Instead to his many other respon- told Cronln that It would cost sity business professor In Dublin but career is cut short ented and has the strong ability to sibilities, which Included oversee- about $500.000 to close out Rus- who wrote a book on banking con- get along with people," a strength ing the bank's portfolio of Invest- nak's positions. Cronln told Lud- trols. "Ludwlg's Job was to name top executives need to get different ments nnd ensuring that 1U books wlifs Investigators that he decided names and he didn't name hen." By WILLIAM PATALON in factions to buy Into a single strat- balanced at the end of every day. Seven other employees of AND GDB G. SctrrcuzNTBB egy, Danlelson ttald. to wait a couple ofweeks. Allflrst were dismissed — without At the same time, be sold. Stunningly, Rusnak was able to At a staff meeting on Jon. 28, severance, the bank sold — as a re- Bramble often spoke of retiring skirt one of the standard controls Cronln announced that Rusnak's sult of Ludwljfs findings. To his closest friends, Allflrst early, perhaps to teach college or employed by banks or brokerage positions were being closed out. Allfiral Treasurer David M. Financial Inc. Chairman Frank P. just tobewlth his family. houses that operate trading desks -That's It then?" Ray said. Cronln and Rusnak's supervisor, Bramble often talked about leav- Bramble set out on his own as a — the trade confirmation. Every "We're continuing to close out ... Robert Ray. were the highest- ing the fast-paced world of busi- consultant before rejoining Mary- trade WHS supposed to be con- Rusnak's positions?" ranking executives let go. Aside ness at a relatively young age, pos- land National Bank In 1983. as a nrraed by someone In the bank's When Cranin said yes, Ray pre- from Rusr.nk himself, they were sibly even to teach. vice president in the international back office who worked Independ- dicted that Rusnak would quit. the most heavily criticized figures Bramble, S3, is getting his wish, division. When the bank began to ently from the trader. A couple of days later, the back- In I.uiiwlii's assessment and by Al- though perhaps not In the un- founder after a series of bad real "But Mr. Rusnak was somehow office supervisor inquired whether lied lop executives yesterday. clouded atmosphere he might estate loans, he was named chief able to bully or to cajole the opera- Rusnak was still trading. The em- Cronln and Ray missed enough have desired. Allflrat's Dublin- operating officer under Lemer, the tions staffer responsible for con- ployee said Rusnak had traded a red flags to decorate downtown based parent. Allied Irish Banks bank's largest shareholder, who firming Mr. Rusnak'n trades Into small number of options and Moscow because they were PLC. disclosed yesterday that the had assumed control Six months not confirming all of them," the re- showed his supervisor two deal charmed. Impressed — and ulti- Allflrst chairman will retire June 1. Frank P. Bramble, head of later, he became chief executive of- port sold. tickets. Neither had confirmations mately overmatched — by Rusnok The announcement of Bram- Allfirst Financial Inc., was found ficer as Lemer stepped back from He even persuaded a back- attached. and his International trade maneu- ble's Impending departure accom- htamtttsi in the trading scar.dal. the day-to-day operation, a posi- office employee that certain option vers. Ludwlg said. panied the findings of an internal tion he held until the takeover by trades In Asia did not have to be 'Fake docs' Others who were Informed AIB probe into SOQ1 million in made him a great coalltlon- NatlonsBank. confirmed, something the report Reminded that every trade Wednesday night that they arc be- trading losses at Aliflrat. but at the bullder, a necessary talent. But the During his tenure as a top area noted that the clerk might have needed a confirmation, the em- ing fired were Allflrst treasury ex- same time absolved him of blame. move rankled among some within banker. Bramble has meant a lot found convenient. Because of the ployee reviewed UckeU Involving ecutive Jan Palmer. Lawrence The Internal investigation con- a bank that had a history of to Baltimore because of his civic time difference. confirmlniE Asian certain Asian options and discov- Smith, whose responsibilities In- ducted by Eugene A. Ludwlg "bos grooming its own leaders by pro- commitments. Bramble served on trades would have required the ered 12 unconfirmed trades. By cluded verifying Rusr.nk's trades; confirmed that Frank Bramble motlngfrom within. the University of Maryland Medi- back office employee to be at work Feb. 1, Rusnak had left 12 written and two Internal audit managers. had no Involvement in or knowl- "By and large, the employee cal System Corp.'s board of direc- In the middle of the night. confirmations on the back- office Michael Huslch and Lou SUfker. edge of the Improper conduct that base to this day remains skeptical tors for eight years, the last four as Rusnak also found ways to cir- employee's desk. The stunning loss — equal to took place in AUfirsl's Treasury of him," a former Allflrst executive cumvent risk-control officers, who The confirmations "looked bo- half of Allled's profit for 2001 — will unit (where currency trading took sold. Rapoport, the president and CEO use a statistical model to help esti- gus," according to the report. An also lead it to centralize greater place]," the company sold In a Prior to joining Allflrst, Bram- ofthe University otMarylond Med- mate the maximum range of loss a Investigation later revealed that oversight of Its disparate banking statement. ble was tapped by Cleveland ty- ical System Corp., who also Is on trader might suffer In a given port- Rusnak had created them on htn properties in the United Kingdom, According to AIB, Bramble had coon Alfred Lerncr to help rescue a AMrsl'a board ofdlrcctam. folio. To calculate the risk, the con- home computer In a file called the United States and Poland un- privately told the Dublin bank that teetering MNC Financial Inc., par- Bramble stepped down as trol officers needed access to cur- "fake docs." der the home office. The boards of he wanted to retire even before the ent of Maryland National Bank, chairman In December as part ot rent foreign currency rates and to When confronted about the bo- the parent and subsidiary banks losses were discovered the largest In the state. He took the normal leadership changeover. a listing of Rusnak's current hold- gus-looking confirmations, "Rus- will be shuffled slightly to foster ADursl snicl Bramble wan not over in July 1991, at age 43. A year "He has been a mentor to me. ings. nak became angry," the report additional oversight, too. available for an Interview yester- and a half later, he presided over and he was an outstanding chair- But Rusnak falsified his hold- said. "He said he was making Allied Chairman Lochlonn day. the sale of MNC to NatlonsBank man," said Rapoport. "He helped ings, the report said, making It ap- money for the bonk, and that If the Qulnn sold yesterday that he While Bramble was given a free fornbout 51.4 billion. us over the past four years as we pear that he held certain options back office continued to question doubted the company would get pass In the fiasco, executives who As It stands now, the turn- acquired four other hospitals. He when he did not. He also made it everything he did. they would drive hack much of the money loat to know him acknowledge that he around and sale of MNC will stand was extremely analytic and Inci- appear that the amount of the him to quit. Mr. Rusnak left the of- Rusnak's trades. had yet to reach the level of suc- as the high-water mark of Bram- sive In helping us analyze business bank's money he had at risk at any fice fora walk outside." Ludwlg sold AllQrst consti- cess at Alifirst that he had been ble's banking career. opportunities for the medical sys- one time —his open currency posi- Ray "warned that If Mr. Rusnak tuted the "fourth worst banking credited with at previous bonking That's still quite an achieve- tem to grow and strengthen Its fi- tion — was smaller than it really left the bank, the loss of his profit- scandal in world history" and was lobfl. ment for a Calvert Hall athlete who nancial position. able trading would force Job cuts In unlike any other he'd ever studied. If not for the currency debacle, worked his way to the top from en- "He still serves on the board, Thla was a "necessary step," the back office." "It was as much a set of human with the momentum being try-level jobs, without benefit of a and I value his participation and the report cold, "because Mr. Rus- tragedies as I've ever seen," Lud- achieved In some of the bank's college degree. his Judgment. ... I really consider It was Friday. Feb. 1. and the Bramble's working life started him an outstanding person In our nak often had huge open positions oversea* trades could not be con- wlg Bald. There was a human dy- basic businesses, another year at notwithstanding his bogus option firmed until Sunday night, the re- namic here that was unholy." Allflrst's helm might have allowed In 13GQ ;us an employee of C&P positions." Rusnak's superiors "weren't him to leave there as a winner, too. Telephone Co., emptying coins Donald P. Hutchlnson, presi- port said. Rusnak promised to call crooked," added Ludwlg. They re- severalsourcessay. from pay telephones. dent of the Greater Baltimore Rusnak woe able to get away the back-ofOcc employee and give lied on the outward signs of an In- But then the trading scandal A year later, he joined First Na- Committee, called Bramble "one of with this because the risk-control him the phone number for the bro- ward grace. I learned something broke. tional Bank of Maryland — prede- the finest guys I've ever known, one officers took some of the numbcni ker who arranged the trades. He myself. To be a really good banker, The numbers were really look- cessor of Allflrst — as on audit of the most honorable, one of the they used In their statistical model never did. you've got to be skeptical.'' ing better." said an obviously dis- clerk, and In 196B he Jumped to most thoughtful, decp-thlnklng directly out of his computer. Many When Ruanak failed to appear at His 57-page report torched the appointed executive who has Maryland National Bank as an ac- people." of the numbers were false. work tbe next Monday, Ray and mismanagement In Allflrsfs trad- worked with Bramble at several In- counting clerk. By 1D77. Bramble "While I can't predict where his Even auditors were foiled. the back-office manager reported Ing department and painted an stitutions. badrucn to assistant controller. career will Uikc him ... he has ter- In 1399. Internal auditors failed the transactions to Cronln. In one even darker picture of Rusnak. 37. Bramble joined First Maryland Several more promotions had rific skills and there are business to take any samples of Rusnak's "final, but futile." effort to find Rufi- of Mount Washington, than had Bancorp — the forerunner of followed when. In 197B. he Joined leaders who have respect for him," transactions to see If they had nak and confirm the trades, Ray emerged previously. Allfirst — as president and chief bank consultants Danlelson Asso- Hutchlnson said. "If he wonts to been confirmed. In August 2000, and Cronln drove to Rusoak'E Rusnak engaged In "vigorous executive officer In April 1094. He ciates as an associate director, continue to work. I'm sure that they gampled only one of Ru.inak'B manipulation" by creating False was viewed as an executive whose where he started a lifelong friend- there'll be a role for turn In this foreign currency option trades. It confirmation slips from other superb communication skills ship with firm principal Arnold G. turned out to be genuine.