Nick Leeson: Rogue Trader

Born 25 February 1967The Victim Barings BankArrested 2 March 1995 (Germany) -  extradited to SingaporeTrial December 1995 - SingaporeConvicted December 1995 - Fraud and deceptionSentenced 6½ years in a Singapore prison

In 1992, Leeson began making unauthorised speculative trades. These proved successful at first and made significant profits for Barings. Leeson appeared to be an exemplary employee. However, it was not long before things began to take a turn for the worse. At that time, a derivatives trader only needed to bring to the table a small percentage of the amount being traded, thereby making it possible to incur huge losses if the deal went sour.Many of Leeson’s deals did turn sour and he opened a secret account (numbered 88888, considered an extremely lucky number in Chinese numerology) to hide his losses from the company. By late 1992 the account, for which Barings was responsible, was in the red by over £2 million and by late 1994, the sum had grown alarmingly to £208 million. Executives at Barings were none the wiser and by the end of 1993, Leeson had made in excess of £10 million, accounting for ten percent of Barings’ total annual income. The whiz kid could do no wrong in their eyes.On 16 January 1995, Leeson placed a short straddle (a non-directional options trading strategy, involving substantial risk) in the Tokyo and Singapore stock exchanges. It was basically a bet that the Japanese stock market would make no significant overnight move. This seemed reasonable, as the Japanese economy was experiencing a rebound after a 30-month recession. However, the following morning, at 5.46am on 17 January 1995, the Great Hanshin Earthquake struck. Its epicentre was the prominent port city of Kobe, Japan. It measured 6.9 to 7.3 on the Richter scale, lasted 20 seconds and killed over 6,000 residents. Its effect was to cause massive upheaval in the Asian markets as well as in Leeson’s plans.Not to be outdone, and in attempt to recoup his losses, Leeson then embarked on a series of increasingly risky new investments. He bet that the Nikkei Stock Average would recover swiftly. This did not occur and Leeson was further compromised.He carried on requesting funds from Barings to continue trading, in the hope that he would rectify his losses. In three months he purchased more than 20,000 futures contracts – worth around $180,000 each – in an attempt to move the market. It was all in vain and these trades totalled three quarters of the eventual $1.3 billion loss suffered by Barings.On 23 February 1995, two days before his 28th birthday, Leeson decided the situation was beyond his control and he would never redeem himself. He fled, leaving a note that simply said, “I’m sorry”. Barings executives discovered what he had done, were forced to inform the Bank of England, and Barings bank went bust.

In December 1995, Nicholas Leeson was charged by the authorities in Singapore with fraud in the deception of his superiors as to the riskiness of his activities and the scale of his losses. They did however acknowledge that he had been given authorisation for the 16 January 'short straddle'.Leeson pleaded guilty to forging documents and misleading SIMEX and was sentenced to six and a half years in a Singapore prison, rife with vicious gangs. The sentence was back-dated to his arrest on 2 March 1995.Devastated with this turn of events, Leeson’s wife Lisa found work as an airhostess so that she could visit him regularly. Unfortunately it wasn’t long before their marriage began to show signs of strain. The last straw was Leeson’s brazen infidelity with geisha girls and Lisa divorced him immediately.

The 233-year-old Barings bank incurred losses of £827 million ($1.4 billion at the exchange rate of that time). The sum amounted to twice the bank’s trading capital and reserves, and led to its immediate collapse.Investors lost their savings and 1,200 employees lost their jobs. ING, a Dutch bank, agreed to assume the majority of Baring’s debt and acquired the bank for £1.When questioned, Leeson claimed to have opened the (88888) error account to hide a £20,000 trade, made by one of his subordinates, which had been incorrectly recorded. In fact, over time, he used the account to cover numerous bad trades of his own. Leeson claimed never to have used the account for his gain but lawyers for Barings eventually found several bank accounts linked to Leeson, with a total worth in the region of $35 million.Barings was not entirely without blame. Leeson had been able to conduct his dealings in secret and hide his losses from the bank due to an administrative abnormality. Barings management had allowed him to perform functions usually done by two people. That is, in an unethical move, Leeson had acted both as Chief Trader whilst also settling his own trades.It was discovered during the investigation that in 1993, an internal memo had been written, warning London head office of this very problem. It read: “We are in danger of setting up a system that will prove disastrous” but nothing was done to resolve the issue. In January 1995, SIMEX communicated their concern with Leeson’s activities to Barings, but to no avail.When Leeson and his wife went on the run, they first fled to Malaysia, then to Brunei and finally on to Germany. It was here that the law caught up with him and Leeson was arrested in Frankfurt airport on 2 March 1995, just less than two months after his first short straddle. After nearly nine months in Germany, spent trying to avoid it, Leeson was finally extradited to Singapore for trial and sentencing.

Whilst still in prison, Leeson wrote an autobiography ‘Rogue Trader’ (1996) that detailed his acts, published by Little Brown and Company, in Boston. It was later made into a film of the same name, released in 1999, starring Ewan McGregor and Anna Friel. In the autobiography, Leeson placed much of the blame for his crimes on Baring bank’s own deficient internal auditing and risk management practices. There were many observers who agreed with this view.When diagnosed with colon cancer, with dire forecasts, Leeson was released from prison in 1999. He returned to the UK where he underwent chemotherapy, losing both his hair and a great deal of weight. He was a shadow of his former self and his lavish lifestyle had certainly evaporated. He had no home and no work but friends and family supported him during his recovery period.Always the survivor, Leeson overcame his illness and went on to make money from his bad experiences. He was paid a considerable fee for his book to be serialised in The Mail newspaper. In 2001 he began studying for a Psychology degree at Middlesex University, which he completed.Describing himself as one of Britain’s most sought-after speakers, Leeson is a regular guest on the after-dinner speaking circuit. He presents talks to companies on Risk Management and does conference speaking, based on his experiences. He says: “With cancer as with other problems, it’s amazing how adaptable human beings are, and you will be able to cope provided you keep a strong frame of mind.”In April 2005, Leeson was appointed Commercial Manager of Galway United Football Club and was made General Manager in November 2005. Following the success of his autobiography, Leeson co-authored ‘Back from the Brink: Coping with Stress’ with British psychologist Ivan Tyrrell. Published by Virgin Books and released on 23 June 2005, the book picks up the story where the first left off, including in-depth conversations with Tyrrell.Leeson now lives in Barna, County Galway in the west of Ireland with his second wife, Leona Tormay, an Irish beautician and their three children – Leona’s son and daughter from her first marriage and their own son, born in 2004. Leeson still deals on the stock market but uses his own money.