Have you ever thought that a person’s misconduct can bankrupt a large financial institution? I have summed up 7 significant Rogue Traders failures which left a big impact in the financial markets.
Financial markets are mostly impacted by significant economic or political events. However, there are moments when they encounter moves due to a person’s mistake, in particular, rogue traders. The term “rogue trader” defines a trader who acts independently of clients or institutions that employ him or her. Commonly, this type of trading is risky and might cause massive losses.
Last year, London’s FTSE 100 index went down by more than 2%. This drop occurred after a trader inserted £300m (instead of £30m) by mistake when selling a portion of shares. Another, major incident of such took place in 1998. When, a trader at Salomon Brothers accidentally sold £850m-worth of French government bonds, because he leaned on his keyboard. Humans are after all not perfect, but below I have listed 7 other significant Rogue Traders failures which will amaze you.
7 Rogue Traders failures that changed the markets
Jérôme Kerviel – Genius of Fraud
Jérôme Kerviel is a former trader at Société Générale who was accused of unauthorized usage of bank’s computers and forgery that caused €4.9 billion losses to the bank. The more money Kerviel lost, the more he gambled.
Although some called Jérôme Kerviel an idiot, one French top banker named him “genius of fraud”. The rogue trader received this title as he managed to cover his tracks and bypass his bank’s checks. Due to Mr. Kerviel’s misconduct, the bank was accused of sending share prices crashing around the world. Ironically enough, the trader itself did not gain anything from his forgery.
Nick Leeson – Author of bestseller “Rogue Trader”
One of the best-known rogue traders is Nick Leeson who bankrupted the second oldest British merchant bank, Barings Bank. Barings Bank became insolvent following huge losses incurred by its Singapore general manager of futures trading.
Mr. Leeson lost £860 million on Asian futures markets which wiped out the cash reserves of the bank. Following this collapse the company was bought, while Mr. Leeson sentenced to four years in jail. However, the court released Mr. Leeson in 1999. After which, he published the bestseller “Rogue Trader”. Presently, Nick Leeson is a chief executive of Irish football club Galway United.
Toshihide Iguchi – A cover-up that lasted over a decade
In 1995, the president of the Japanese Daiwa Bank received a letter from its Executive Vice President and U.S. Government Bond trader. Mr. Iguchi disclosed that he lost $1.1 billion because of unauthorized bond trading.
After Mr. Iguchi revealed his losses, it turned out that he had conducted the cover-up for over a decade, forging some 30,000 trading slips. Hence, in 1996, the court sentenced him to prison for four years and charged $2.6 million. Also, the court punished the bank for misconduct.
In 2006, Japan’s bank sold most of its US assets, following the order of the Federal Reserve (Fed) to cease all operations in the US.
Brian Hunter – Allegations of gas prices manipulation
Another person on the list is Brian Hunter. He was a Canadian-based natural gas trader for the Amaranth Advisors hedge fund which is now closed. Brian Hunter failed to gamble on natural gas futures. Following his misfortune, Amaranth went bankrupt.
In addition, Amaranth and Hunter were convicted by the Commodity Futures Trading Commission (CFTC) of conspiring to manipulate natural gas prices.
John Rusnak – How to hide $691 million of trading losses?
Among other famous rogue traders failures, is the one connected to John Rusnak. He was penalized due to hiding $691 million of trading losses so that he could grow his own earnings. John Rusnak was blamed for bank fraud and false entry in bank records. Following his accusation, the authorities began investigating trading practices at Allfirst Financial. The firm is a subsidiary of Allied Irish Bank (AIB). The probe lasted for 4 years, from 1997 until 2001.
Mr. Rusnak accumulated and concealed losses of $691 million. Despite being viewed as a quiet family man, he created pseudonyms and falsified documents to cover up a growing financial hole from bad bets on currencies.
Yasuo Hamanaka – A 10-year career of unauthorized dealing
Less known but financially significant was the £1.3bn blown away by Yasuo Hamanaka, a metals trader at Japan’s Sumitomo. The court sentenced Yasuo Hamanaka to eight years in jail, in 1996.
Following his confession of a 10-year career of unauthorized dealing. He had falsified the signatures of two of his chiefs in letters sent to foreign dealers.
A Mizuho Securities Trader – “Fat-Finger” syndrome
Lastly, is the incident with a Mizuho Securities trader who sold 610,000 shares in job recruiting company J-Com Co. for 1 yen a share. Instead of selling 1 share at 610,000 yen. Unfortunately, the firm was unable to void the order and lost $340 million. The mistake was referred to the “fat-finger” syndrome as a trader pushed the wrong button on a keyboard.
Later, the Tokyo stock exchange confirmed that its system’s crash made it impossible to revoke the trade. Mizuho Securities and the exchange discussed sharing the losses. However, the entities have not managed to come to an agreement yet.
Do you know any other significant Rogue Trader? Let us know in the comments section below