Everybody knows that trading carries the risk of losing serious money, but rogue traders are defined by their wildly excessive, reckless, or unauthorized trading habits.
As Jerome Kerviel's trial kicks off this week over trades that cost French bank Societe Generale 4.9 billion euros ($6 billion) back in 2008, history indicates that his kind of rogue activity is more common than you might think. Rogue traders fascinate the public because they tend not to act out of greed. They don't care about money. They care about winning.
Rogue traders routinely breach their trading limits, and frequently concoct elaborate cover-ups to hide their losses. Their activity is in the grey area between civil and criminal illegality for the reason that the trader is a legitimate employee of a company or institution, yet enters into transactions on behalf of their employer without permission.
So who are the world's most infamous rogue traders? Click ahead to find out!
By Barbara StcherbatcheffPosted 8 June 2010
Losses accumulated: $1.3 billion
Perhaps the most famous rogue trader of all time. In 1995, Leeson led England's 233-year old Barings bank into bankruptcy with failed bets on Nikkei futures. The $1.3 billion of liabilities he had run up was more than the entire capital and reserves of the bank. Eventually arrested in Frankfurt, Germany, Nick spent a few fraught months trying to escape extradition to Singapore. He failed and in December 1995 a court in Singapore sentenced him to six-and- a-half years in prison. In 1999, his story was then turned into a film, Rogue Trader, starring Ewan McGregor.
Losses accumulated: $6 billion
A 33-year-old French compliance worker-turned-rogue trader, who has been charged with losing Societe General 4.9 billion euros ($6 billion) in 2008 due to unauthorized trades. Societe Generale officials claim that throughout 2007, Kerviel had been trading profitably. But then he exceeded his authority to engage in unauthorized trades. Kerviel “breached five levels of controls” in the bank, and was “a computer genius,” according to Christian Noyer, the governor of the Bank of France. With the exception of the fraud perpetrated in Bernie Madoff's ponzi scheme, Kerviel's losses are reported to be the largest fraud in banking history.
Losses accumulated: $1.8 billion - $5 billion
Hamanaka led Sumitomo's metal trading division, which controlled about 5 percent of the world's copper supply. Also known as "Mr. Copper", he used this influence to manipulate the market via the London Metal Exchange (LME), which sets the price of copper around the world. He kept the price of copper artificially high for nearly an entire decade leading up to 1995 and earned huge profits.
When Hamanaka was removed from his role by suspicious regulators, the price of copper plunged and Sumitomo announced that it had lost more than $1.8 billion and that the losses could go as high as $5 billion. Sumitomo claimed that Hamanaka was a rogue trader and that his actions were completely unknown to management. The even damaged Sumitomo's reputation as many people believed that the company could not have been ignorant of Hamanaka's actions, especially because it profited for years from it.
Losses accumulated: Unknown
Liu is reported to have sold copper that he did not own on behalf of the Chinese State. In 2005, Qibing took a huge bet (around 200,000 tons) that copper prices were going to fall. However, copper prices rose substantially over the life of the trade, which led to massive losses.
According to sources within the London Metal Exchange, Liu, a metals trader with 10 years market experience, vanished shortly after this trade went wrong. The paper trail pointed towards the Chinese State Reserve Bureau. But the Chinese government denied that a Liu Qibing had even existed to place a short. The extent of the losses are questionable, and his wherabouts are still unknown.
Losses accumulated: $691 million
Former currency trader at Allfirst bank, part of Allied Irish, Rusnak's failed bets on the yen snowballed into $691 million worth of losses. Rusnak was so bullish on the yen that he neglected to hedge his forward contracts. When his unhedged positions faced losses, Rusnak panicked and entered false options into the system that made it look like his positions were hedged. When the bank demanded that Rusnak release some of the capital to ease its balance sheet, his scam was discovered. He was sentenced to seven-and-a-half years in prison for bank fraud.
Losses accumulated: $6.6 billion
A former trader for the now-bankrupt Amaranth hedge fund, whose bets on natural gas futures lead the firm to take a $6.6 billion loss. In 2006, Hunter had bet that the difference between the price of natural gas for 2007 March and April contracts would widen. Instead, the spread narrowed, creating losses for Amaranth.
Hunter is currently waiting for the Federal Energy Regulatory Commission (FERC) to give their final decision in connection with the alleged manipulation of natural gas prices, and is also awaiting trial with the Commodity Futures Trading Commission. Both are civil lawsuits. Hunter still trades actively in the markets.
Pictured: 1 American Lane, Greenwich, CT. where Amaranth Advisors LLC offices were.
Losses accumulated: $1.1 billion
The Daiwa Bank trader is responsible for $1.1 billion in losses resulting from about 30,000 unauthorized trades over an extrordinarily long period of 11 years. In September 1995, fearing the damage his losses may cause the bank if inadvertently discovered, Iguchi wrote a 30-page confession letter to the president of Daiwa Bank in Japan detailing what happened.
In 1997, he was sentenced to four years in prison, was released in 1999 and began a new life as a writer. In May 2002, he published My Billion Dollar Education, an English version of his best-selling book The Confession.
Pictured: Akira Fujita (R), President of Japan's Daiwa Bank, announces a loss of 1.1 billion dollars from 11 years of fraudulent trading by a rogue bond trader at its New York branch, during a press conference in Osaka, Japan, 26 September 1995.