Trader Fact File: John Rusnak

John Rusnak is a former currency trader who was sentenced to more than seven years in prison for hiding nearly $700 million in losses at Allfirst Bank. Although his fraudulent activity was revealed around 2003, Rusnak had been with the bank nearly a decade earlier as one of its first forex traders to pursue profits on positions instead of merely using them as hedges.

Career

Prior to his stint at Allfirst, Rusnak had been employed as a forex trader at Fidelity Bank in Philadelphia in 1986. He then worked at Chemical Bank in New York from 1988 to 1993, before he started looking for a less stressful position. At that time, David Cronin of Allfirst Bank in Maryland was hoping to hire a new forex trader, representing the interests of Allied Irish Bank.

The Ludwig report commissioned by the AIB revealed that Rusnak traded mostly the yen and the euro. His trading strategy sounded new and inventive at that time, as he consistently made profits with a large option book hedged in the cash markets.

Facts

In 1993, Allfirst Bank hired John Rusnak to take charge of its forex trading operations, noting his strong track record from Fidelity and Chemical Bank. In particular, his profitable positions mostly came from matching forex options with forward contracts in order to manage risk.

However, Rusnak didn’t seem to adopt this risk management practice when he took on an aggressive bullish position on the Japanese yen, believing that the currency has already bottomed out after the Japanese asset price bubble burst back then. The Asian crisis that followed then resulted to policy changes that worsened losses on his bullish yen positions without any hedges in place.

Instead of trimming his positions, Rusnak entered false options in the bank’s system that made it appear as though his positions had matching hedges. He kept doubling his bets and even secured more capital to take on larger positions in hopes of mitigating his losses. But with the amount of capital tied up to forex positions growing, the bank eventually forced Rusnak to disclose his holdings, which amounted to a staggering loss of $691 million.

Achievements

Rusnak was described as being far from the typical image of a rogue trader. He is a churchgoer based in Maryland with two kids and a mortgage. Compared to other traders in his generation, Rusnak was seen to earn a humble salary of $85,000 a year with modest bonuses, far from living a millionaire lifestyle.

Following his sentencing, Rusnak was transferred from prison to a halfway house in 2008 and was ultimately released from confinement in 2009 on good behavior and having completed a drug treatment program. Since then, Rusnak has become an advocate for men coming home from incarceration and seeking second chances. He is also involved in drug and alcohol rehabilitation, acting as a witness to his faith and God’s redemptive power. Rusnak has also started paying $1,000 a month for the five years of his probation.

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