Leeson: 'Rusnak was living a lie'

Leeson was given six-and-half-years in a Singapore jail

LONDON, England -- The case in America of John Rusnak and his alleged $750 million fraud recalls the case of British derivatives trader Nick Leeson whose losses brought down Barings Bank.

Leeson, who was jailed for his actions, said Rusnak's losses at Allied Irish Bank had exposed "incompetence and negligence" in the banking world.

He said there were "striking similarities" between the suspected bogus deals at AIB's U.S. subsidiary and his own 1995 scandal in Singapore when he lost $1.2 billion.

Leeson, 36, told CNN he was "shocked" when the first reports of the AIB case came through.

VIDEO Former trader Nick Leeson compares his part in the fall of Barings bank to the Allied Irish Banks case in an interview with CNN's Richard Quest (February 7) Play video (QuickTime, Real or Windows Media) A $750 million hit: CNN's Allan Dodds Frank reports (February 7) Play video (QuickTime, Real or Windows Media)   MORE STORIES • A rogue's gallery of trading  • Experts: Rogue trades hard to spot  • Profile: Trader a 'churchgoing family man'    EXTRA INFORMATION More business news from CNN.com Europe    QUICKVOTE Are banks doing enough to stamp out fraud? Yes No View Results

He added that although AIB is on record as saying their case is not the same as Barings it "has to be of the same proportion."

He said the products were complex, but the rules were the same.

Leeson said Rusnak probably felt he was caught in the same spiral that trapped the Barings trader.

"You are scared," he said.

"I never expected to get away with it. From the first I expected to get caught. You expect somebody to come into the office and expose the lie. For me, it took three years."

He added it was a "terrible life" living the lie -- especially for the pressure it put on him as he tried to hide it from his family life.

Leeson said that although there are traders who are able to carry out normal business from day to day, there will be some who will be "striving" to do better.

Rusnak's U.S. lawyer says he has not stolen any money and has not been charged by authorities.

"My client is not a fugitive," Bruce Lamdin told The Associated Press. "We hope that things will take their natural course from here. That's up to the U.S. attorney's office."

Liabilities

Leeson's story -- which was made into a film, Rogue Trader, starring Ewan McGregor -- emerged in February 1995 when, like Rusnak, he failed to show up for work.

What Leeson knew, and what his bosses in London were about to find out, was that his catastrophic dealing had landed the bank with open-ended liabilities.

The previous month, he had started betting that the Nikkei index of top Japanese companies would rise after a year in the doldrums and had opened a secret account -- '88888' -- to mask his dealings.

Had he succeeded, he would have made Barings large profits and a bonus for himself of at least $4.2 million, on top of his $280,000 salary.

But he came unstuck with the Kobe earthquake in mid-January, which killed more than 5,000 people, wrecked one of Japan's major commercial cities, and sent Japanese share prices nosediving.

Leeson bought more contracts as the market fell, hoping a turn in share prices would recoup his losses. Unusually, he was allowed to oversee settlement of his own deals. It was a loophole he exploited to set up bogus accounts for non-existent clients to mask mounting debts.

When Barings executives discovered what had happened, they informed the Bank of England that Barings was effectively bust.

It was the end of an institution founded in 1762 and which, during its long history, had financed the Napoleonic wars, did deals with kings and princes, and purchased Louisiana from France for the U.S.

Leeson, meanwhile, and his wife, Lisa, fled Singapore to Malaysian where, after several days in hiding, they decided to try to reach the UK on a flight via Germany.

On the flight to Frankfurt, they were recognised and later arrested. Leeson's legal fight against extradition back to Singapore failed and in December 1995 he was sentenced to six and a half years after admitting two counts of financial misrepresentation. Prosecutors dropped the other allegations.

Having served nearly nine months in Germany awaiting extradition, his sentence was backdated to March 2, 1995.

While serving his sentence, he developed cancer of the colon, underwent surgery and was released early, in the summer of 1999.