Citibank confirmed today it had suspended two traders who had dealt with Allfirst currency trader Mr John Rusnak, but said the suspensions are for reasons unrelated to trading activity.
The two - one working in New York and the other in Singapore - were suspended indefinitely with pay.
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Mr John Rusnak
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The bank refused to comment on a report in the
New York Times
that the two had been inappropriately entertaining the Allfirst trader or discuss the details of the suspensions.
The New York Timesquoted foreign exchange traders who said the suspensions were based on what the bank considered "improper entertaining" of Mr Rusnak. It was not clear what the "improper entertaining" involved.
One of the Citibank employees, Mr Richard Marra, based in New York, traded with Mr Rusnak when Mr Marra was employed by Merrill Lynch. Mr Rusnak took his business to Citibank when Mr Marra moved there in 2000. The other based in Singapore has been named as Mr Joseph Craven, by the paper.
Bank of America, the other prime broker used by Allfirst is conducting a review of its relationship with the AIB subsidiary. Mr Jeff Hershberger, a spokesman for Bank of America in New York told ireland.com this afternoon "All of the checks and balances of our prime brokerage service performed properly with respect to the Allfirst account."
He added "We continue to conduct our own internal review of Bank of America’s interactions with Mr Rusnak and the bank’s prime brokerage relationship with Allfirst."
He continued "We have not found any evidence that any Bank of America employees colluded with Mr Rusank. Bank of America has not suspended any employees in connection with this matter nor do we expect to do so in the future based on our internal review that has been conducted to date."
Mr Hershberger said Bank of America will also continue to cooperate and assist with investigations regarding the Allfirst and John Rusnak matter.
Foreign-exchange sales representatives try to attract and keep big traders, including entertaining them, to try and bring in profitable business to their banks.
The Ludwig report said Mr Rusnak was perceived as an active trader and a profitable client for the brokers.
The brokers and traders heavily entertained Mr Rusnak, with meals, hotel stays, golf trips, Super Bowl tickets and other travel. "He apparently liked to be wined and dined, and the brokers obliged" according to the report.
The Citibank spokesman told the New York Timesthat the bank cooperated with the Ludwig investigation.
In March 2000 Citibank informed AIB’s group treasurer Mr Pat Ryan that Mr Rusnak had a position of more than $1 billion in Japanese yen although his trading limit was $2.5 million.
After what was described as a "discreet inquiry" with Baltimore, AIB and Allfirst were satisfied that Mr Rusnak’s exposure was offset by other assets in the form of currency options. But these contracts have now been shown to be fake.
Prime brokerage facilities are usually used by large investors like hedge funds and arbitrageurs who deal in huge volumes of currency.
The Ludwig investigation into Allfirst’s activities said that these trading agreements allowed Mr Rusnak "to increase significantly the size and scope of his real trading."
The Ludwig report questioned the role and appropriateness of Allfirst’s prime brokerage arrangements considering the size of Allfirt's treasury business.
Mr Ludwig’s team found transactions with prime brokers that were off-market or not in accordance with "market standards".
"It appears that these digressions may have helped Mr Rusnak conceal his positions and/or his losses" the report said.
It adds these "unusual" trades should be "fully reviewed to ensure that no impropriety took place and to clarify fully whether the prime brokers or other dealers, or personnel at these firms, obtained any benefits in their dealings with Mr Rusnak other than full bid-offer spreads and market fees."
AIB cancelled Allfirt's prime brokerage arrangements with Citibank and Bank of America, following the discovery of Mr Rusnak's losses.