Former Allfirst currency trader John Rusnak has been given a 90-month prison term, for his part in the AIB scandal.
The sentence will be followed by 5 years of supervised release, in return for his assistance in the ongoing criminal investigation to look into possible involvement by others in the alleged fraud.
Rusnak, who worked for AIB's Baltimore-based US subsidiary, Allfirst Financial, pleaded guilty to one count of bank fraud for executing a scheme that defrauded AIB and Allfirst out of hundreds of millions of dollars over a five year period in one of the biggest scandals in recent banking history.
Appearing before US district judge William Nickerson, Rusnak pleaded guilty to bank fraud today in the $692.1 million trading scandal that rocked parent company Allied Irish Banks.
He also will be barred from serving as an officer, director or employee of any FDIC depositary institution.
Justice Nickerson said that Rusnak is likely to be required to pay restitution. The plea bargain specifically states that he agrees to being responsible for $691 million in trading losses at Allfirst that staggered AIB.
AIB fired six employees over the scandal and agreed last month to sell its troubled Allfirst unit to M&T Bank in a $3.1 billion cash and stock deal that would give AIB a 22.5 per cent stake in the resulting operation.
An internal investigation at AIB conducted by former US currency regulator Mr Eugene Ludwig blamed Rusnak for fraud but also criticised AIB for lax management and faulty controls.
In June, Rusnak entered an initial not-guilty plea to a seven-count federal fraud indictment by a grand jury that said his illicit activities were aimed at winning salary and bonuses totalling $850,000 from 1997 to 2001. He was not accused of profiting directly from the alleged fraud.
If convicted after a trial, Rusnak would have faced a maximum penalty of 30 years in prison, $1 million in fines and up to five years of supervised release on each count. Rusnak allegedly bought large sums of yen for future delivery on the assumption that the Japanese currency would gain value against the dollar.
When the market moved against him, he began covering up his losses with fictitious documents and off-balance-sheet accounts at other financial institutions, according to the indictment, which also said he used an alias.
He allegedly recorded false trades complete with falsified faxes from trading partners that never existed and hid details of his activities through prime brokerage accounts at Citigroup Inc., Bank of America and Merrill Lynch.
The indictment also claimed that Rusnak sold risky yen-dollar option contracts to five counterparties - Citibank, Bank of America, Deutsche Bank, Merrill Lynch and Bank of New York.
The unorthodox deals raised nearly $300 million in cash premiums. But later, Rusnak allegedly falsified option transactions to cover up $380 million in liabilities created by the same transactions.
Rusnak has a tentative sentencing date of January 17th, 2003.