Major financial institutions often employ traders to involve themselves in buying and selling on global markets. These traders make decisions on behalf of the financial institutions, as well as on behalf of clients. These traders can make a lot of money – but sometimes they go rogue as mistakes prompt them to hide losses and make big gambles in an attempt to turn the tide. The hope is that one big payoff can erase years of hidden losses and make everything right.
Unfortunately, rogue traders resort to reckless trades that can hurt their employers, as well as their clients. Moderate losses turn into massive losses as rogue traders try to cover their tracks, and as they make bigger trades in an attempt to force the market to move. Many use creative accounting practices and outright lies to hide their losses, which can add up into the billions. While some rogue traders lose millions over a short span of time, most rogue traders mount losses over a period of years – even decades – thanks to compounding mistakes, forged trade contracts and orders, and fabricated profits. Here are 10 of the top rogue traders:
10. Joe Jett: $100 Million
Joe Jett, head of the government trading desk at D. Kidder, Peabody & Co. Incorporated fabricated $350 million in profits in order to hide $100 million in losses. He was discovered in 1994, and Kidder ended up being sold.
9. Peter Young: $700 Million (tie)
Peter Young raised eyebrows at his trial when he began cross-dressing and evidence of a botched do-it-yourself sex change emerged. However, before he turned the courtroom into a circus, he lost $700 million and tried to hide it from his employer, Morgan Grenfell. He was ruled unfit to stand trial because of his antics.
8. John Rusnak: $700 Million (tie)
Johsn Rusnak was a dealer on foreign exchanges for Allfirst Financial, a division of Allied Irish Bank. Over the years, as his losses mounted on bets related to the Japanese yen, Rusnak began fabricating options contracts to obscure the problems. However, in 2002 his perfidy was discovered – including the fact that he had gone well beyond his trading limit to bet Allied’s money in an effort to make it all back. He made a plea deal, and was sent jail for seven and a half years.
7. David Lee: $800 Million
David Lee was a Bank of Montreal energy trader, specializing in natural gas, when his fraud was discovered in 2007. Government prosecutors in Canada, as well as the Bank of Montreal, are also implicating Kevin Cassidy, the owner of a small brokerage and someone with a criminal record, in the fraud, insisting that he helped Lee attempt to hide his huge losses. The trial is ongoing, and it looks like it should continue to be interesting.
6. Toshihide Iguchi: $1.1 Billion
Toshihide Iguchi sent a 30-page confession in 1995 to the president of Daiwa Bank in Japan, admitting to huge bond trading losses amounting to $1.1 billion. These losses accumulated over years of trading as he did his best to turn a profit while hiding his failures by falsifying tens of thousands of trading slips. As a result, Iguchi went to jail, and Daiwa had to stop operating in the U.S.
5. Nick Leeson: $1.3 Billion
Nick Leeson worked in the Singapore office of the 233-year-old British investment bank Barings. Among the distinguished clients of Barings was Queen Elizabeth II. However, in 1992, thanks to Leeson, Barings folded. This collapse, and the subsequent publicity Leeson received after the fact, makes him the most famous rogue trader, even though he didn’t lose as much as other rogue traders on this list. Leeson used an error account to cover his losses as he earned commission after commission, and made attempts to move the market. In the end, he ended up publishing a book and had his story turned into a movie starring Ewan McGregor. Now, he is a paid speaker, talking about risk management.
4. Kweku Adoboli: $2 Billion
Kweku Adoboli was identified by UBS as a rogue trader in September 2011, in an incident that indicates that banks might not have learned lessons from earlier brushes with rogue traders. He was taken into custody in Britain, and is likely to stand trial for fraud. The news dealt another blow to UBS, and could be used to bolster the case for increased separation between investment banking and retail banking offered by financial institutions.
3. Helmet Elsner and Wolfgang Flöttl: $2.5 Billion
Helmut Elsner and Wolfgang Flöttl were charged, along with others, for their roles in rogue trading at Bawag, an Austrian bank. They defrauded Bawag and others in an attempt to hide losses in interest rate swaps and currency swaps, and were finally caught in 2006. They were charged with conspiracy, and sentenced in 2010, although Elsner has been experiencing health problems that could mean removal to a better environment.
2. Yasuo Hamanaka: $2.6 Billion
Yasuo Hamanaka was considered a copper market whiz as part of Sumitomo Corporation – until it came out in 1996 that he had committed fraud and forgery in order to hide $2.6 billion in losses that piled up over 10 years. Some believe that at one point Hamanaka controlled as much as five percent of the global copper market, forcing prices up and raking in huge profits even though his company was losing money. He was sent to jail for his fraudulent actions.
1. Jerome Kerviel: $7.1 Billion
Jerome Kerviel is perhaps the top rogue trader of all time – so far. As an employee of Societe Generale in France, he lost $7.1 billion. His losses became apparent in 2008 as fears of a mortgage market meltdown were manifesting themselves. Kerviel moved from back office trading to the front office, and became quite adept at manipulating computer data so that his losses were hidden. The world was shocked when Soceite Generale, the second-largest bank in France, announced such large losses as a result of a single rogue trader.