Thursday 22 August 2019

AIB's $872m claim against Citibank in Rusnak case

Rogue trader John Rusnak spent almost seven years in prison for Allfirst fraud. Photo: Bloomberg News.
Rogue trader John Rusnak spent almost seven years in prison for Allfirst fraud. Photo: Bloomberg News.
John Mulligan

John Mulligan

AIB is seeking at least a staggering $872m (€823m) in damages and interest from Citibank in its case against the US institution related to the activities of rogue trader John Rusnak over a decade ago.

It had previously been anticipated that State-owned AIB would seek about $500m in damages.

But new court filings in the United States show that AIB is seeking $372m in damages, and "at least" $500m in punitive damages, trial costs, fees and expenses.

The trial, which is due to begin in New York in January, is shaping up to be one of the most bruising and expensive rogue trader cases ever. The lawsuit was first filed against Citibank by AIB in 2003.

AIB has alleged that Citibank effectively helped Mr Rusnak cover up illicit trades that resulted in mounting losses at the US AIB subsidiary Allfirst, where the trader worked.

The near-$700m in losses racked up by Mr Rusnak were among the largest of any rogue trader case at the time.

Citibank has robustly denied AIB's allegations and hired crack lawyer Ted Wells to defend it. Mr Wells - considered one of the best trial lawyers in America - is also one of a number of lawyers representing oil giant BP in its battle against alleged securities fraud linked to its Deepwater Horizon disaster off Texas in 2010.

In a pre-trial memo, it has been confirmed that Citibank will call Mr Rusnak to give evidence during the trial, which the US bank expects to last up to four weeks.

It said it will probe Mr Rusnak on "the nature, scope and extent of his activities at First Maryland and Allfirst and the involvement and knowledge of others in them" as well as his "guilty plea and cooperation agreement with the US government". Mr Runsak pleaded guilty in 2002 to bank fraud and served over six years in prison. He now runs dry cleaning shops in Baltimore, Maryland.

Also being called as a 'live' witness by both Citibank and AIB at the trial will be Irishman David Cronin, who ran the treasury operation at Allfirst where Mr Rusnak worked.

He will testify about Allfirst's treasury department, the supervision of Mr Rusnak's trading, and his decision to shut down Mr Rusnak's trading in 2002, which quickly lead to the discovery of the trader's activity.

Mr Cronin was fired from Allfirst following the release of a report in 2002 by Eugene Ludwig into the fraud at the bank. Five other Allfirst employees were also sacked. AIB sold Allfirst in 2003 to US bank M&T.

Other Allfirst and Citibank employees from the time will also be called to give evidence, while huge amounts of commentary previously made by or referring to individuals including former AIB chief executive Maurice Buckley will also be entered as evidence. Recordings of telephone calls, emails, memos and handwritten notes will also be presented to the court.

A number of expert witnesses will be called by AIB and Citibank at the trial in January.

AIB said previously noted that the case against Citibank has involved extensive paperwork, including 680,000 documents, hundreds of hours of recorded telephone calls, more than 100 fact depositions on three continents and 15 expert reports.

AIB is almost entirely state-owned after being bailed out to the tune of €21bn as the financial crisis struck.

The Government has indicated that it expects the taxpayers' stake in the bank to start being sold off next year. It's expected the State will reap between €3bn and €4bn from the sale of a 25pc stake.

Irish Independent

Also in Business