February 17, 2011
By Staff Reporter
Last week, the U.S. Federal Reserve Board announced that it had issued prohibition orders against two former Allied Irish Banks (AIB) executives as a consequence of the currency-trading imbroglio that hit AIB’s American subsidiary Allfirst in 2002.
A trader with Allfirst, John Rusnak, racked up losses of $691m through dodgy dealings that were kept hidden from the institution. Rusnak eventually pleaded guilty to a series of fraud charges and was given seven years imprisonment in 2003, the same year in which AIB sold Allfirst to the Baltimore-based M&T bank.
Last week’s prohibition orders, first reported by the MarketWatch.com website, banned David Cronin and Robert Ray from taking up positions with any insured depositary institution, bank or savings association holding company.
At the time of the scandal, Cronin was the executive vice-president and treasurer of Allfirst. Ray was the senior vice-president of treasury funds management. Ray was the man who had responsibility for Rusnak on a day-to-day basis, while Cronin was his ultimate boss. The duo were fired shortly after details of the scandal became public.
The Fed said that each of the two men “without admitting to any allegations, consented to the issuance of the order based on his alleged unsafe and unsound practices in connection with his supervision of a subordinate.”
The Irish Times noted last week that an earlier AIB investigation into the Allfirst affair found that Ray had “missed the big picture” in relation to Rusnak’s fraudulent behavior, while Cronin was the “key weak link” in the chain that should have prevented such activities from going unnoticed for so long.
The same newspaper also reported that an American law firm had opened the door for American investors who lost money because of the Rusnak scandal to claim their part of a class action settlement.
The announcement from the company, Finkelstein, Thompson & Loughran, noted that a preliminary settlement had been reached for people who bought a particular class of AIB share between February 6 1999 and February 6 2002 inclusive.
The settlement, which totals $2.5m applies only to investors who bought “American Depositary Shares” in AIB between those dates. Individuals who were part of the class action or who think they may be eligible for a share of the settlement must have their Proof Of Claims forms postmarked no later than August 17. Any relevant party who wishes to opt out of the terms of the settlement must do so no later than June 20.
The Irish Times reported that the average sum recovered through the settlement, before attorneys’ fees are deducted, would be about 38 cents per share. The sum was relatively modest, it suggested, because AIB shares recovered quickly in the aftermath of the scandal, buoyed largely by speculation about a possible takeover attempt by Royal Bank of Scotland.
AIB denied wrongdoing in the matter, but agreed to settle, it said, to avoid the cost and uncertainties inherent in the case.
AIB is a litigant as well as a defendant in the some of the labyrinthine legal actions that have followed in the affair’s wake. In February, a judge in New York gave AIB the go-ahead to sue Bank of America and Citibank for $500m.
The two banks, which AIB alleges concealed the extent of Rusnak’s losses, had tried to have the suit dismissed. But Judge Deborah A. Batts ruled that, even if AIB’s own procedures were deeply flawed, its allegations suggested that the other two banks’ purported “fraudulent reporting and concealment also facilitated” the scandal.
While the Rusnak affair was a major blow to AIB’s prestige at the time it came to light, it does not appear to have done the bank’s balance sheet lasting damage. AIB’s chairman, Dermot Gleeson, informed shareholders who attended its AGM in Cork last week that its prospects were “bright” and that it should continue to make significant profits. The bank’s preliminary results for 2005, released in February, showed an operating profit of around $1.8bn.
However, Gleeson also came under pressure from shareholders who were displeased by the size of executive pay packages. A severance package to a former executive that totaled more than $4m came in for particular criticism.
Gleeson preferred to concentrate on salaries paid to executives who continue to serve, saying. “We pay well. We must be cognizant of the fact that people can be attracted elsewhere.”