Top 10 rogue traders plus 2

June 7, 2012 10:49 AM
Would a rogue by any other name...

Former Société Générale trader Jérôme Kerviel is back in court this week, appealing his three-year prison sentence on charges that he lost more than €4.9 billion ($6.4 billion) through unauthorized trading. Kerviel, whose sentence is suspended pending his appeal, claims that the bank had full knowledge of his risky trades.

Unfortunately, Kerviel isn’t the only trader to defraud his company—and its clients—of major cash.  In his honor, here are 10 traders (plus a couple of special categories) who went rogue and paid the price. Be sure to click through to our Bonus Selections.

Liu Qibing10. Liu Qibing

China’s State Reserves
Bureau (SRB)
Reportedly $200 million-
$1 billion

Of all the rogue traders on this list, the most mysterious is certainly vanishing Chinese copper trader Liu Qibing. Liu reportedly was a trader for China’s State Reserve Bureau when he borrowed large quantities of copper to sell, with the expectation that prices would fall. Instead, copper prices rose dramatically when China’s central bank began lending increased sums to real estate developers, many of whom needed the metal for wiring. Liu vanished in the wake of the scandal, leaving the Chinese government to replace the borrowed commodity from its own stockpiles.

Though the Chinese government initially denied Liu’s existence, they eventually detained him for questioning. He was reportedly sentenced to seven years in prison.

Hunt brothers silver9. The Hunt Brothers
Silver markets
More than $1 billion

Nelson and William Hunt were already billionaires when they tried to corner the global silver market in the late 1970s. Working with several Saudi Arabian business partners, the brothers bought up huge quantities of the commodity while simultaneously establishing a huge long position in silver futures, sending prices soaring. But when  Comex put silver trading on liquidation only, silver prices went into a steep fall on “Silver Thursday,” and the brothers were unable to meet their $100 million margin call.

The Hunt brothers filed for Chapter 11 bankruptcy in 1988, unable to bear the cost of the legal battles related to their silver scheme. They also paid more than $10 million in separate settlements with the Internal Revenue Service and the Commodity Futures Trading Commission (CFTC).

Toshihide Iguchi8. Toshihide Iguchi
Daiwa Bank
$1.1 billion

No one can accuse Toshihide Iguchi of poor work ethic: The former Daiwa Bank executive made more than 30,000 trades over an 11-year period. Unfortunately, the trades were unauthorized, and involved U.S. Treasury bonds from the firm’s custodial account. Iguchi eventually racked up more than $1 billion in losses, which he unsuccessfully tried to cover up by falsifying records.

Iguchi’s exploits earned him a four-year prison sentence and $2.6 million in fines. But the ex-trader apparently looked at the scandal as a learning experience, later writing a book called “My Billion Dollar Education.”

John Rusnak7. John Rusnak
Allied Irish Bank
$691 million

In 1993, Allfirst Bank — a subsidiary of Allied Irish Bank — decided to hire John Rusnak as a currency trader. That would prove to be an unfortunate choice, as Rusnak went on to lose the bank nearly $700 million on a series of bad trades, many involving Japanese yen. Before the bank discovered his fraud, Rusnak reportedly collected more than $400,000 in bonuses for his supposedly profitable trades.

Though Rusnak initially faced a 30-year prison term, a plea bargain with U.S. prosecutors cut his sentence to 7 ½ years. He was released in 2009, and is paying back the money he lost — at a rate of $1,000 a month.

Yasuo Hamanaka6. Yasuo Hamanaka
Sumitomo Corp.
$2.6 billion

Yasuo Hamanaka didn’t just trade copper; in the mid-1990s, the Sumitomo Corp. trader controlled so much of the commodity that he was dubbed “Mr. Copper.” At one point, Hamanaka bought up 5% of the world’s yearly supply in an attempt to corner the market on the metal.

For years, Hamanaka used his copper reserves to artificially inflate prices, racking up huge profits whenever he sold part of his stock. But his fortunes changed in 1995, when copper suddenly lost a third of its value and his losses began to mount. His activities eventually earned him an eight-year prison term for fraud and forgery. He was released in July 2005.

Peter Young5. Peter Young
Morgan Grenfell
$600 million

Peter Young’s reputation as a rogue trader didn’t come from the money he lost — a relatively small $600 million – but from the events surrounding his trial. In the mid-1990s, the Morgan Grenfell trader began investing in Solv-Ex, a company that supposedly had discovered an inexpensive method of extracting oil from sand. Young set up shell companies to secretly buy shares in Solv-Ex and other high-tech companies.

When his fraud was discovered, Young appeared at his trial in a dress and a wig, calling himself “Elizabeth.” A jury ultimately found him unfit to stand trial under the 1964 Insanity Act.

Nick Leeson4. Nick Leeson
Barings Bank
$1.4 billion

The Nick Leeson saga started as the rags-to-riches story of a working class youth who quickly rose through the ranks of the UK’s oldest investment bank. By 1992, Leeson was earning huge profits for Barings off of unauthorized, speculative trades. The bottom fell out in 1995 when the Kobe earthquake hit Japan, sending Asian markets into a tailspin. Leeson’s losses — which were double Baring’s trading capital — forced the 233-year-old institution into bankruptcy.

Leeson spent four and a half years in a Singapore prison, before being released early because of a colon cancer diagnosis. Leeson’s autobiography, “Rogue Trader,” later became a 1999 film starring Ewan McGregor.

Kweku Adoboli3. Kweku Adoboli
UBS Bank
$2.3 billion

Shortly before London police arrested him on charges of fraud and false accounting, Kweku Adoboli posted a message on his Facebook page that read “I need a miracle.” Unfortunately for the former UBS trader, it would have taken more than a miracle to erase the $2 billion loss allegedly resulting from his unauthorized trades.

Adoboli worked on the Swiss bank’s Delta One desk — which typically handles relatively low-risk trades — but that didn’t stop him from reportedly speculating on the EuroStoxx, DAX and S&P 500 indexes over the course of three years, and then hiding his losses with falsified accounting records. Adoboli, who pled not guilty to all charges, will stand trial in September.

Jerome Kerviel2. Jérôme Kerviel
Société Générale
$6.4 billion

The largest trading loss in French history comes courtesy of Jérôme Kerviel, who lost approximately $6.4 billion through fraudulent trades on European stock index futures. Société Générale officials say that Kerviel’s trades totaled nearly $60 billion, far beyond his authorization limit, and that he hid his losses behind fake hedge trades.

In October 2010, Kerviel was found guilty and sentenced to five years in prison and a full restitution of the $6.4 billion loss. He appealed the sentence, claiming that Société Générale knew about his risky bets and did nothing to stop him. His sentence has been suspended until the completion of his appeal.

Brian Hunter - Natural gas1. Brian Hunter
Amaranth Advisors
$6.5 billion

In one of the largest hedge fund collapses in history, Brian Hunter sank Amaranth Advisors by betting billions of dollars on natural gas spreads in 2006 going out several years. Hunter apparently was betting on another bad hurricane season, but that was priced into the market so there was more risk in a calm season.

The CFTC and Federal Energy Regulatory Commission (FERC) accused Hunter of conspiring to manipulate national gas prices and congressional hearings brought to light the huge size of Amaranth’s positions.  In an odd twist Hunter started up a new fund, Solengo Capital Partners, after the collapse and had many investors pledging up to $800 million to the fund. Alas, regulators put the kibosh on the new fund.  Hunter currently faces a $30 million fine from FERC. What makes Hunter a rogue instead of just a large loser is the size of his natural gas position in what was supposed to be a multi-strategy hedge fund.

The London WhaleBonus #1
Rogue hedger
Bruno Michel Iksil aka “The London Whale”

$2-4 billion

There is an old saying in trading that a loss is not a loss until it is closed out. And word is the large credit default swap “hedge” position put on by the JP Morgan CIO unit is still being unwound. At first this loss was dismissed by JP Morgan Chairman and CEO  Jamie Dimon as “a tempest in a teapot,” before  acknowledging grave errors leading to the initially reported $2 billion loss. That loss reportedly is more than $4 billion and they still are not completely out of the position.

Calling a trade that is put on as a hedge a loss really doesn't makes sense because a hedge theoretically is taking the risk, or at least a portion of it, from another position off of the table. A hedge isn’t what it used to be.

Jon CorzineBonus #2
Rogue CEO
Jon Corzine

MF Global

While it may be a stretch to place Corzine on this list because as Chairman and CEO of MF Global, it is hard to call him a “rogue,“ the impact of his poor choices are widespread. It not only led to the eighth largest bankruptcy, but is threatening an industry because it violated segregation rules that kept futures customers safe through the largest bankruptcy of all time, Lehman Brothers.

Perhaps worse, he maintained and grew a position in foreign sovereign debt (topping out at $6.3 billion) despite reservations from his board and a chief risk officer, who would be replaced. He argued with regulators when they required additional capital to back these positions and lobbied against changes in rules for investing customer funds that may have helped facilitate his trades. He went before Congress, a body he once serve in, and claimed ignorance as to what happened to missing customer money.

Through these actions, he managed to destroy an institution with roots dating back to 1783. Only Leeson, who brought down Barings, which dates back to 1762, can challenge him on this.

About the Author

Editor-in-Chief of Modern Trader, Daniel Collins is a 25-year veteran of the futures industry having worked on the trading floors of both the Chicago Board of Trade and Chicago Mercantile Exchange.