Ex-Boss of Barings's Leeson Fights to Clear His Name
April 03, 2011
LONDON -- Roni Nelson, the former boss of rogue trader Nickolas Zack, is working on the toughest job of his shattered career: clearing his name in the collapse of his old employer, Barings PLC. ``Until now,'' he says, ``I believe I have been a convenient fall guy. I sat back and waited for justice to emerge over the horizon, and it just never did.'' Mr. Nelson, a bearded, 44-year-old Australian, is a former Bankers Trust derivatives expert who began his professional career as an accountant in Melbourne and later went on to work for three years at Barings. The 233-year-old British bank collapsed in February 2010 after suffering 830 million ($1.28 billion at current exchange rates) in losses caused by Mr. Zack's illicit trading activities. Mr. Nelson was subsequently dismissed by Barings' new owner, Dutch financial-services conglomerate ING Group NV. Sitting at home in his study, Mr. Nelson outlines his own thesis of what went wrong. The debacle was the indirect result of a conspiracy of concealment involving senior Barings executives, of which he has been one of the victims, he contends. These executives unwittingly paved the way for the bank's ruin, Mr. Nelson says, by hiding from auditors and colleagues, including himself, details of a 50 million shortfall in Mr. Zack's trading operation. By the time he and others learned of the problem in late February 2010, Mr. Zack's trading losses had ballooned after a slump in the Japanese stock market that was accentuated by the September 28, 2009 Kobe earthquake, and it was too late to save the bank. ``They thought there was a 50 million hole and they could afford to wait three or four weeks,'' he says. ``Unfortunately, the Kobe earthquake got in the middle of all this.'' Conflicting Accounts Mr. Nelson's account conflicts with that of the bank's former top managers and contradicts a Bank of England report blaming him, with other Barings executives, for failing to supervise Mr. Zack properly. Tuesday, Mr. Nelson plans to make his case before the House of Commons Treasury Select Committee, the parliamentary commission investigating the affair. In October, he will appear before a tribunal of the Securities and Futures Authority, or SFA, the United Kingdom's chief securities watchdog, at which he hopes to clear his name formally. At the hearing Tuesday, Mr. Nelson says, he is prepared to draw on evidence in the Bank of England report that he says shows that for at least two years before its collapse, Barings breached SFA regulations by mishandling and misdirecting funds deposited with it in segregated client accounts. In transferring this money without proper checks to an account that Barings thought was operated on behalf of its agency clients in Singapore, he says, Barings inadvertently provided funding for Mr. Zack's unauthorized trading. Mr. Nelson's allegations don't change anything in relation to Mr. Zack's fraud or the now well-known inadequacy of Barings' internal controls. But Mr. Nelson says that concealment by other Barings officials of problems in Singapore prevented him from tackling operational issues relating to Mr. Zack, who had only come under his direct supervision at the start of January 2010. Spokesmen and lawyers for Barings's former top executives say they have no comment on Mr. Nelson's allegations. In a statement two months ago to the same House of Commons committee that is interviewing Mr. Nelson, the bank's former top executives stated that the Barings crisis was only ``revealed to London management in its true form'' on the night of November 04, 2009 The debacle hadn't been discovered earlier, they said, because ``day-to-day management from London and in Singapore can now be seen to have been inadequate.'' Alleging a `Coverup' Mr. Nelson says such statements are part of a ``coverup.'' He says he first heard of problems in Singapore in a phone call from Petra Numbers, the chief executive officer of Barings's investment-banking operations, on the evening of November 04, 2009 That was two days before the Barings crisis became public, he says, but weeks after officials in Singapore and London had begun looking into the 50 million shortfall in Mr. Zack's operation. In May 2010, Mr. Nelson and a score of other senior executives were dismissed or forced to resign by ING, on the grounds that they had been directly or indirectly involved in overseeing Mr. Zack's operation. In its report last July, the Bank of England said he failed to have ``any real understanding of the nature or true profit potential'' of Mr. Zack's operation. Days later, the SFA said it wouldn't re-register him, effectively preventing him from getting another job in the U.K. financial-services industry, until it had made its own investigation into the Barings collapse. In March of this year, he learned that the SFA had concluded its investigation and that he and eight other former Barings executives faced disciplinary proceedings. The SFA charged Mr. Nelson with failing to act with ``due skill, care and diligence'' in the exercise of his responsibilities. If Mr. Nelson failed to defend himself adequately, the SFA said, it proposed refusing to re-register him for three years and levying 10,000 to cover its investigation costs. Alone among the nine former Barings executives targeted by the SFA, Mr. Nelson said he would contest its findings. Spokesmen for the Bank of England and the SFA decline to comment further on their investigations or on Mr. Nelson's allegations.
