Lai See

Rogue bankers are not criminals, says trader who lost US$1.1b

PUBLISHED : Thursday, 01 May, 2014, 1:18am
UPDATED : Thursday, 01 May, 2014, 1:18am

We don't often get the opportunity to chat with a trader who lost US$1.1 billion. That was the misfortune of Toshihide Iguchi, who was jailed for four years in 1996 for unauthorised bond trading at Daiwa Bank in New York.

Iguchi is in Hong Kong to promote his book, My Billion Dollar Education: Inside the Mind of a Rogue Trader, in which he explains how he lost the money and how he hid his losses for 12 nerve-wracking years.

Daiwa New York acted as a trustee bank for Japanese funds that bought US stocks. To cover his losses, Iguchi sold the securities the bank held on behalf of its Japanese clients.

Iguchi explains in harrowing detail how he tried and failed to recoup his losses and the torment he faced daily of being discovered. As he says in his book: "The need to make a certain amount of dollars as quickly as possible deprives him [the trader] of the ability to look at the market objectively and as a result, he will break all the rules of trading."

One of the strangest aspects of this awful saga is that Iguchi's main job was to manage the securities custodian department. His bond trading was a sideline he started to make money for the bank and to improve his job prospects. But, as he says: "I was like an amateur fighter going into the ring with the WBC champion."

Along the way, his wife left him and he had to give up his efforts to bring up his two teenage sons. Eventually, he sent a letter explaining his actions to the bank president in the hope that the parent bank in Tokyo would pay to restore the securities and transfer the problem to Japan. He felt betrayed by Daiwa, which turned him over to the US authorities without warning, despite the lengthy assistance he gave it.

In addition to describing the psychological contortions he went through in trying to dig himself out of a hole, Iguchi also argues for decriminalising so-called rogue trading. "Rogue traders are not criminals who act out of greed," he told Lai See yesterday.

Iguchi quoted JC Bruce, who wrote Rogue Myth: "By attributing these actions (unauthorised trading) to 'rogue', it immediately becomes unforeseeable, unpredictable and virtually unpreventable, thereby exonerating all those that should have created an environment where this type of behaviour would be inhibited. Rogues are the perfect scapegoats to shift the blame for incompetence and ineptness on the part of 'very' well remunerated executives and less well remunerated regulators."

Iguchi yesterday also made comparisons between Daiwa's case, which was fined US$340 million and lost its New York branch, and HSBC's egregious money-laundering case and US banks that had been charged with far worse, saying "the US operates a two-tier justice system".

US prosecutors have elected to go for huge fines rather than criminal prosecution of banks and its senior executives. It is very telling that despite the billions of dollars that banks have paid in fines, not a single senior executive has been charged with a crime. That said, despite his contempt for the hypocrisy he found within the US justice system, the book is dedicated to Edward Stroz, the FBI agent who arrested Iguchi.

"Without his compassion for humanity and dedication to fairness, I would not be here to write this book," Iguchi said.

This is the stuff of movies.


Pie in the sky

Cathay Pacific Airways tells us that it has "joined hands" with Tosca, the Italian restaurant at the Ritz-Carlton hotel, to launch what they say is an exciting inflight menu. This will be confined to business and first class passengers on selected, undisclosed long-haul routes until July.

Tosca's Michelin-starred chef, Pino Lavarra, says: "In the sky, there are no limits to your imagination. When working with Cathay Pacific, I was particularly intrigued by the approach of creating intense flavour pairings that can offset the impact flying at high altitudes has on the sensitivity of our taste buds."

The press statement says Ritz-Carlton is the "world's highest hotel", presumably on the basis that it is near the top of the 484-metre high International Commerce Centre. But it is wrong. The hotel may be a number of floors off the ground, but that doesn't have the same ring to it.


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