5 Of the Worst Rogue Traders in History
Toshihide Iguchi
Toshihide was born in Kobe, Japan, a city that would also come to be at the epicentre of Nick Leeson’s disgrace some years later as we will see... Toshihide was a trader of the Japanese Daiwa Bank, working as a portfolio manager, mainly trading in US Treasury Bonds at its New York subsidiary. In early 1983, Toshihide’s losses from bond trading were contained at $70,000 — a manageable loss that anyone could have incurred. Unfortunately for Toshihide, and very probably partly due to the Japanese culture as well as trying to keep his job, he decided to hide his losses. In an attempt to recover the relatively small loss, Toshihide continued to average his position, accumulating ever increasing losses until it reached a point where the loss was so big that he was concerned he could actually be putting the whole bank at stake!
“Toshihide continued to average his position, accumulating ever increasing losses until it reached a point where the loss was so big that he was concerned he could actually be putting the whole bank at stake! ” In a moment of contrition, albeit much too late, he decided to write a letter to the President of Daiwa Bank in Japan detailing the enormity of the situation. Some eleven years had passed since the first hidden loss of $70,000 and which had turned into $1.1 billion! He was ultimately sentenced to four years in prison in 1995 and was released in 1999 and now dedicates his time to writing and teaching English in Kobe, Japan.
Nick Leeson Leeson’s role was what is called “index arbitrage”. For anyone who is not familiar with what “arbitrage” is, the standard description is “riskless profit”. The irony of Leeson’s job title and his eventual losses would not be lost on him many years later...
Perhaps the most famous of all the “rogue traders” is the man who broke Barings Bank — none other than Mr Nick Leeson. Everything seemed to be rosy for Nick when he was transferred from the London office with his then beloved wife Lisa (who would come to leave him while languishing in jail) to Singapore to trade on the SIME.
According to Leeson in his autobiography, he describes the first fraudulent trades in the infamous “fives 8’s” account (8 being a lucky number in China) as a consequence of attempting to cover up the mistakes of a local female colleague. Initially, he managed to trade his way out of the mistake and actually book a profit and, if greed hadn’t gotten the better of him, that would have been the end of the matter. Sadly for him and Barings shareholders, the making good of the losses on the five 8’s account gave way to the realisation that Leeson could conduct unauthorised trades and pull the wool over the directors in London. Of course we all know what’s coming next...
March 2013
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