Toshihide Iguchi confessed to concealing a US$1.1 billion trading loss for a Japanese bank in 1995 and for that he spent four years in prison in the United States.
But two decades later, the former rogue trader still thinks it was unjust for the US federal government to send him to prison.
“I don’t think I have committed a crime. I don’t think I should have been criminally prosecuted,” Iguchi said.
“It’s a violation of internal rules. To be a federal crime, you have to cause harm to someone and have the intention. I didn’t have that intention.
“I was trying to recoup the loss by myself. But if I couldn’t I was ready to come forward. So I kept every piece of information that’s related to my loss … and I gave the boxes of information to them [the bank] in 1995.”
It all happened more than 20 years ago while Iguchi was working at Daiwa Bank’s New York branch as a specialist in US government bonds.
In 1983, he decided to conceal his US$70,000 loss in trading Federal Reserve Notes to protect his reputation and job. He continued trading in the hope of recovering the loss. Instead, the losses snowballed — all the while nobody noticed the irregularities. Iguchi was even promoted to executive vice president of the company in 1991.
He said the bank should have been the one to decide his punishment, opting either to sack him or sue him in a civil suit for the loss. He claims the federal government could not provide a reasonable justification as to why he was jailed; it was all part of a blame game.
“It’s sensationalism. People like to see someone losing millions of dollars going to prison. Institutions love that because that they don’t have to take the blame. They can blame the rogue trader,” he said.
“When you call the trader a rogue trader, he’s the problem, the bad apple. Send him to prison, and everything is fine.”
A rogue trader is an authorized employee making unauthorized trades on behalf of their employer. This activity is in the grey area between civil and criminal illegality as the perpetrator is a legitimate employee of a company or institution, yet enters into transactions on behalf of their employer without permission.
Everything came unstuck in 1995 when Iguchi decided to come clean and confessed to the president of the bank, which he said was for the good of the bank.
“I wanted to come forward because if I don’t and someone else finds it, like auditors, then the news will spread right away … If people take advantage of that knowledge, that can drive the company down to the ground,” he said.
Iguchi said he wanted the CEO to be well prepared, with all the information.
However, the bank eventually decided to turn him in after verifying the losses and seeking advice from the US attorneys.
“I feel like I was betrayed … Never put your faith in the hands of anyone. You have to take control of yourself, which I didn’t,” he said.
But despite that, he also said it was unjust for the federal government to revoke the bank’s license and order it to pay a record US$340 million fine for weak internal controls and a 24-day delay in reporting the case to the authorities after Iguchi came clean.
Iguchi said this incident led to the merger of Daiwa Bank and others in 2002, as the capital base was too small to continue. The bank was renamed Resona Holdings Inc., which is now Japan’s fifth-largest banking group by market value.
Rogues still out there
While Iguchi’s rogue trading happened 20 years ago, he said the behavior is still thriving in the financial sector.
“The control itself is not at all technology. It’s done by people. And there are always some people who are weaker or more conscientious than others … In the network of internal controls, there are always weak points,” he said.
“And traders, when they are in a desperate position, they always exploit that weakness. They know where the weaknesses are and how much they can get away with.”
But Iguchi warned against testing those limits and covering up losses.
“If you are thinking about it, don’t do it. And if you are already into it, come forward because it’s going to get worse. It’s like quicksand and there’s no way out,” he said.
“I know sometimes things look so bad that the consequence of reporting could be horrible but it’s never as bad as you fear.
“Look at me, because I don’t want to report US$70,000.
“If your firm is not very strong in internal controls … then your loss could go to billions and you could really ruin your life.”
Iguchi is in Hong Kong to promote his book of the affair, “My Billion Dollar Education: Inside the Mind of a Rogue Trader”.
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