AIB fraud involved fake entries in SunGard's Devon

Allied Irish Banks' John Rusnak, the trader accused of concealing $691 million in foreign exchange losses over five years, inputted false trades into SunGard's Devon System, which was used to process prime-brokerage accounts at Allfirst Financial, the bank's US subsidiary, according to an AIB-backed inquiry.

The inquiry, conducted by Eugene Ludwig and law firm Wachtell, Lipton, Rosen & Katz, did not fault the Devon System's technology, but referred to abuses of the software and the bank's risk and audit processes.

Rusnak entered false forex forwards into Devon to manipulate the apparent open forex position used to calculate value-at-risk. Internal audits apparently did not detect the abuses, the report said.

The Devon System was first licensed by Allfirst 10 years ago, and neither AIB nor Allfirst elected to upgrade to recent product versions. Devon is usually updated every year, claimed Clare Porter, vice-president of SunGard Trading and Risk Systems, which includes Devon. The issue at Allfirst was not related to technology but to operational deficiencies, Porter said.

Devon, which produces an audit trail and keeps track of the lifecycle of trades as they are booked, amended or cancelled, has administrative log-on controls that admit only certain users and activities for each user, as well as a user-defined password change frequency. It also keeps track of any change to any field and the user associated with those changes, Porter said.

"Devon has comprehensive controls in place that work in conjunction with risk policies or procedures," she said. "The vast majority of our clients have built the system into their processing environment. But technology is only as good as the processing environment around it."

About 250 banks use the Devon system. Porter said SunGard had not experienced any unusual spike in client questions related to the Allfirst scandal.

Rusnak had dealings with at least two other derivatives and risk management vendors – DerivaTech and GFInet/Fenics – but declined to purchase any of their products allegedly due to cost reasons.