Bud news, in detail; Etigtne A. Ludwig, former U.S.
comptroller of the currency, discusses the AUfint scandaL
blamed at Allfirst
"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
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
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
created a computer Die titled
fake docs" to store his de-
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
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
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-
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.