WASHINGTON – Allfirst Bank has fired six managers who were directly responsible for oversight of John Rusnak, the trader who has been blamed in the loss of $691.2 million in what bank officials are calling a fraudulent scheme.
Allied Irish Banks, the parent company of Allfirst, announced the shakeout Thursday after two days of private discussions in Dublin, Ireland, on an independent expert’s report Rusnak’s activities and failures in the bank’s policies and controls.
No charges have been filed against Rusnak, a Baltimore-area resident who has cooperated in an FBI investigation of the losses.
In his 57-page report to the AIB board, U.S. banking expert Eugene Ludwig said “the fraud was carefully planned and meticulously implement by Rusnak . . . and involved falsification of key bank records and documents.”
Rusnak manipulated “the weak control environment in Allfirst’s treasury; notably, he found ways of circumventing changes in control procedures throughout the period of his fraud,” Ludwig said.
The report also said Rusnak’s trading activities “did not receive the careful scrutiny that they deserved. The Allfirst treasurer and his treasury funds manager — the principal persons responsible for Mr. Rusnak’s supervision — failed for an extended period to monitor Mr. Rusnak’s trading.”
As a result of the report, the bank fired David Cronin, executive vice president and treasurer; Jan Palmer, senior vice president, treasury operations administration; Robert Ray, senior vice president, treasury funds management; Lawrence Smith, assistant vice president, operations and financial analysis; Michael Husich, head of internal audit; and Lou Slifker, team leader, internal audit.
No action was taken against Allfirst Chief Executive Officer Susan Keating. Allfirst Chairman Frank Bramble had said before the scandal that he planned to retire, and bank officials this week said his retirement will take effect June 1.
David B. Irwin, one of Rusnak’s two lawyers, said he had no comment on either Ludwig’s report or the bank’s actions.
“Our focus is necessarily on the continuous and deliberate investigation of the Federal Bureau of Investigation and the U.S. Attorney’s Office for the District of Maryland,” Irwin said.
Pete Gulotta, an agent in the FBI office in Baltimore, said Thursday that “the investigation is still moving along” and that no charges had yet been filed. Assistant U.S. Attorney Virginia Evans said her office had no comment.
Despite the findings of his report, Ludwig said the bank is sound.
“Allfirst and AIB are financially healthy, solid organizations and they are fully capable of dealing with the losses and implementing our recommendations . . . while maintaining strong capital levels,” the report said.
Allied Irish Banks will centralize the management and control of all treasury activities throughout the AIB Group in Dublin and will stop all proprietary treasury activities in Allfirst, among other changes.
Keating said in a prepared statement that while Ludwig’s report contained “some painful and important lessons,” she stressed the fact that none of the bank’s customers were affected “and Allfirst remains strong.”