“The currency trader blamed for $750 million in losses at the U.S. unit of Allied Irish Banks PLC says he engaged in a series of trades that escalated as he tried to make up for his losses, according to law-enforcement officials involved in the case,” writes Gary Fields in today’s Wall Street Journal.

“Ireland’s largest bank stunned the global banking community on Wednesday by announcing that a foreign-exchange dealer in its U.S. banking unit in Baltimore, Allfirst Financial Inc., incurred huge losses through the trading of Japanese yen before the bank discovered them. The news forced Allied to take a one-time charge of 596 million euros ($519.1 million), and prompted speculation that the bank could become a takeover target.”

“In interviews with federal agents, the trader, 37-year-old John Rusnak, explained that he made a series of bad investments on behalf of the bank and then tried to develop a secret strategy to recover the losses, Federal Bureau of Investigation and other law-enforcement officials said.”

“Those efforts backfired when financial markets turned down, making it impossible for him to recoup his losses. ‘He said he was investing in various enterprises and the stock market dropped on him, so he tried to recoup the losses and he just got deeper,’ a law-enforcement official said. ‘Whether he was authorized to make those investments is one of the questions now.’ “

“The FBI said it is too early to tell if the unauthorized investments would be considered criminal violations. No criminal charges have been filed.”

“An FBI official said that although the investigation is in its preliminary stages and authorities are still looking at Mr. Rusnak’s assets to make sure he doesn’t have hidden assets somewhere, his behavior hasn’t been that of an embezzler. ‘He hung around Baltimore,’ even though he didn’t come to work after bank officials discovered his actions, this FBI official said. ‘It isn’t looking like he embezzled $750 million and has an island in the Caribbean.’ “

“Allied officials, speaking to reporters Thursday night after an all-day board meeting in Dublin, said Mr. Rusnak’s actions, which occurred between early 2001 and last month, weren’t authorized by the bank. The bank’s chief executive, Michael Buckley, said Mr. Rusnak allegedly created fake entities, or counterparties, with which he recorded trades. ‘There is no doubt that John Rusnak was involved in fraudulent activity,’ he said. ‘Whether or not he benefited from that is still the question.’ “

“David Irwin, an attorney for Mr. Rusnak, said he couldn’t comment in detail about the bank’s claims. But, he said, ‘I’m pretty sure the investigation will show that there’s no theft of the bank by my client.’ “