Rogue trader Rusnak, that phonecall, and $872m still at stake
AIB will square up to Citibank next month as the Irish bank seeks at least $872m in damages linked to the John Rusnak rogue trader incident in 2002. John Mulligan reveals the confusion that reigned at the time
"John is gonna be a really desperate man. He turned himself in today."
It was February 7, 2002, and Allfirst rogue trader John Rusnak had just turned himself over to the FBI for questioning about almost $700m in losses he had racked up at the AIB subsidiary in Baltimore, Maryland.
Those with ringside seats to the breaking scandal were frightened and shocked.
A transcript of a telephone call between two former Citibank employees who had known and done business with Rusnak reveal the disbelief that a "family man" could have been the perpetrator of what was one of the biggest ever rogue trading cases.
A currency dealer at Allfirst, Rusnak had covered up mounting losses after failed bets on the Japanese yen.
And next month in a New York courtroom, the debacle is set to be trawled over in a case that will re-open old wounds.
AIB sued Citibank in 2003, claiming the US bank had effectively aided Rusnak's sham currency transactions by helping him to conceal them. It's a charge Citibank strenuously denies and it has hired a crack US lawyer to see off the legal assault from the Irish bank, which is now almost entirely state-owned.
While it had been expected AIB would seek about $500m in damages from Citibank, the Irish Independent recently revealed AIB now wants at least $872m (€797m). That includes $372m in damages and "at least" $500m in punitive damages, trial costs, fees and expenses.
The trial is expected to run for up to four weeks.
The two Citibank employees who chatted on the phone on that Thursday afternoon in February 2002 were Richard Marra and Joe Craven. The transcript of their call, seen by the Sunday Independent, is one of the exhibits that will be just one small part of the evidence submitted in the upcoming trial.
Marra and Craven were both foreign exchange salesmen at Citibank. Marra worked in New York, while Craven was based in Singapore.
The staccato conversation between the pair ran for over 12 minutes.
"I'm pretty f***ed, you know, I feel, I feel, basically at the end of the day I feel violated, you know," a dejected Marra tells Craven. "And the whole, you know, the whole time in some way shape or form you're the pawn. The wool over my eyes, you know... I, you know... I just have to live with that now and hopefully there won't be any legal action taken against me, you know?"
With events just unfolding, the pair couldn't believe Rusnak was involved.
"I never, I always thought you know, this guy is, f**k, a terror - but you also knew that he always kept everything in check," Marra adds.
"It's like, you know, it's just, you know, the guy, you know, it's like you look at him like this is a f**king crazy man, you know, he's the, you know, the treasurer at his kids' Catholic school and his wife runs the youth group at the church, you know, the list goes on and on."
Joe Craven tries to reassure his colleague.
"I was thinking about you man, I really was," he tells Marra.
"I was thinking about you as soon as it happened. I was quite worried about you, 'cause, you know, I knew that you're basically personal friends."
Craven is still obviously trying to come to terms with the news as he speaks to Marra: "You know, I spoke to his wife on the phone, she sounded really nice, the kids used to answer the phone from time to time. Yeah, I feel sick in my stomach, right?"
And as the conversation draws to a close, Craven advises Marra to take some time out when he gets home that evening.
"Just get yourself a takeout, get something delivered, man, sit there, veg in front of the TV, and just chill - that way you'll get an early night tomorrow. You get up and, you know, everything seems darkest before the dawn and tomorrow morning you get up, you know, new events will be happening and, you know, you'll be able to take a fresh look at what's going on."
The following month, both Marra and Craven were fired by Citibank.
The bank said at the time that it had "no evidence" that the pair had colluded with Rusnak or anyone else at Allfirst. However, it was reported at the time that the two men had been fired for "improper entertaining" of Rusnak, who drove significant levels of business through Citibank as part of his foreign exchange dealing.
At the trial next month, the "desperate man" who served almost seven years in prison for his crime doesn't intend to give evidence.
Rusnak has said that he will refuse to testify at the case next month, despite being on a witness list and having received a subpoena. Citibank has declined to comment as to whether or not it will seek to force Rusnak to give evidence.
Under the Fifth Amendment to the US constitution, a person can refuse to give testimony on the grounds that doing so could result in them incriminating themselves.
The case is certain to be complicated, bruising and add to the already huge cost that both Citibank and AIB are certain to have incurred over the past 12 years as their legal battle stretched on.
Others that are expected to give evidence include Irishman David Cronin. He ran the treasury operation at Allfirst.
He's expected to testify about Allfirst's treasury department, the supervision of Rusnak's trading, and his decision to shut down Rusnak's trading in 2002, which lead to the discovery of Rusnak's activity. Cronin was fired from Allfirst following the release of a report in 2002 by Eugene Ludwig into Rusnak's fraud at the bank.
Citibank has once again turned to star US lawyer Ted Wells (65) to mount its courtroom defence. He has successfully defended Citigroup on more than one occasion in the past.
He's also one of the lawyers defending oil giant BP in a securities fraud case linked to the Deepwater Horizon disaster off Texas in 2010. That case is also due to begin in the coming weeks and Wells has told the judge hearing the AIB case that rescheduling may be required if the BP case goes to court in Houston as intended next month.
In 2010, Wells defended Citigroup in a case where UK private equity firm Terra Firm had claimed it was defrauded in connection to its acquisition of music group EMI, and claimed over $8bn in damages. Terra Firm claimed it had been tricked into paying too much for EMI.
The judge hearing the litigation described it as a "catfight between two rich companies".
While Citigroup won that fight, a US Federal appeals court overturned the ruling in 2013. The appeals court ordered a retrial, saying that the judge hearing the original case had erred in explaining the law to the jury.
The two sides have mutually agreed to drop the proceedings in New York and instead have the case heard in London.
Wells also defended Citigroup in a five-month marathon trial where Italian dairy giant Parmalat accused the bank of having aided and abetted in a massive fraud at the firm that resulted in its bankruptcy.
Parmalat expected to win the case, but the jury rejected its claim and awarded Citigroup $364m in damages, having found that Parmalat had committed fraud, negligent misrepresentation and conversion, also known as theft.
It's not clear who has the upper hand in the AIB case against Citibank.
And the call between Richard Marra and Joe Craven on that fateful day in 2002, as Mr Rusnak turned himself over to authorities, helps to sum up the confusion and disbelief at what was happening.
"All I know is the guy was a great guy, he's a family man," Joe Craven says. "I don't believe it was him, they must have gotten it mixed up, it must have been some other guy. You know I have no idea what's going on."
Sunday Indo Business