Rogues and Fat Fingered Traders

Rogue Trader

We thought we'd take a quick look at those traders whose unauthorized actions have led to their firms incurring substantial losses, or worse - losses caused as a result of a foul-up.

And Nick Leeson doesn't even make the top 3!

That dubious honour goes to Bernie Madoff.

In March 2009, Madoff pleaded guilty to 11 federal felonies and admitted to turning his wealth management business into a massive Ponzi scheme that defrauded thousands of investors of billions of dollars. Madoff said he began the Ponzi scheme in the early 1990s. However, federal investigators believe the fraud began as early as the 1970s, and those charged with recovering the missing money believe the investment operation may never have been legitimate at all.

The amount missing from client accounts, including fabricated gains, was almost $65bn. The court-appointed trustee estimated actual losses to investors of $18bn. On June 29, 2009, he was sentenced to 150 years in prison, the maximum allowed.

Up next is SocGen's Jerome Kerviel, who was found to have sustained $6.8bn in rogue trading derivatives losses between 2006 - 2008. He is currently appealing his recent 5 year jail term (2 years suspended).

Then comes Yasui Hamanaka, a metals trader at Japanese conglomerate Sumitomo. His ten-year career in unauthorized trading clocked up losses of in excess of $2bn. He was jailed for 8 years in 1996.

Next up is dear old Nick, the man who burnt a $1.2bn hole in Barings' balance sheet and finally broke the bank in 1995 after a bout of unauthorized trading in Singapore. He got a 6.5 year jail term in.

Then comes 'brogue' dealer John Rusnak, from Allied Irish Banks. He pleaded guilty to hiding $691m in unauthorized trading losses from his firm in 2002 and got banged up for 8 years. After he was uncovered, the bank's compliance team found a 'fake docs' folder on his work PC. A bit of a giveaway you might think.

At around $350m comes Peter Young, a former fund manager at Morgan Grenfell, who was found to have lost monies in a series of unauthorized investments in 1997. Turning up at City of London Magistrates Court in a dress and woman's jumper, Young had been having treatment for a psychiatric condition and was finally found to be unfit to stand trial.

Then comes the crew at National Australia Bank, David Bullen, Vince Facarra and Gianna Gray. Although the bank claimed that the $271m losses a group of four traders incurred between 2003 and 2004 was the result of unauthorised trading, the traders themselves claimed that they were not rogues. No matter, they all subsequently got prison time.

While we're at it, other interesting titbits include:

A Salomon trader became famous in 1998 when he is said to have sold $1.37bn of French government bonds by simply leaning on his keyboard.

The New York Stock Exchange eventually fined Morgan Stanley $300,000 over a fat-fingered trader who, in September 2004, entered an order to buy $10.8bn of stocks - when the buy order was actually for $10.8m.

It was December 2005 when Mizuho Securities revealed that it was facing a $335m loss after an unnamed and relatively inexperienced 24 year-old female mistakenly entered a trade, and ignored an error message that flashed across her screen. The problem was compounded as a systems error over at the Toyko Stock Exchange meant that the firm wasn't able to cancel the erroneous order after it was first discovered.

In May 2001 someone over at Lehman Brothers pressed the wrong button (or the right button too many times!) and sold $429m in shares in certain large corporates - 100 times more than should have been sold. The error occurred just before the London market closed and is said to have temporarily wiped off $52bn from the FTSE. Lehman was subsequently fined $34,000 over the affair.

In December 2001 a trader over at UBS is said to have faced a loss of around $123m, when he attempted to sell 16 shares in Japanese advertising firm Dentsu at 600,000 yen each. Instead he actually sold 610,000 shares at 6 yen each! Fortunately for UBS (and the trader), the firm was able to unwind most of the transactions.

Finally, there was the Bear Stearns foul up. That's when, in October 2002, a 'clerical error' just before the Closing Bell saw the firm sell $4bn in a certain company's stock instead of $4m! Fortunately, all but $622m of the sell orders were canceled before execution.

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