Rogue Trader
eBARING BANKS
THE MOST SHOCKING ALARM BELL ABOUT FRAUDULENT
Introduction On February 26, 1995, the oldest British Bank’s declared bankruptcy due to fraud caused the warning bells for many other organizations about the level of danger fraud can cause. Nick Lesson, a guy who comes from a background of the working class, had been working for Royal Bank Coutts, Morgan Stanley for a couple of years until he finally joined the Barings. He was assigned a job in Barings (Jakarta) to sort out a back-office mess that involves about £100 million in share certificate. After successfully completing his job assignment, Nick was transferred to Barings in Singapore to work as a derivative trader for both Singapore and Japan. Nick caused the lost for Barings Bank of almost 1.4 billion due to the enormous accumulation of trading obligations that he had built up. Nick Lesson thought he could make up the loss by waiting for the market price to go up, but it never happened since the earthquake in Kobe in 1995 was totally out of his plan. Knowing that the bank wouldn’t be able to make up for the loss, Nick ran away with his wife and was caught afterward. Barings declared bankruptcy in February 1995 and was bought by Dutch Bank for £1.
In this report, we would like to discuss more about this case based on the COSO Framework to see the bigger picture on how Nick Lesson could commit such a huge fraud and also learn from that mistake.
Control Environment • Describe the internal control environment 1. High integrity and ethical behavior: board members and executives didn’t set a consistent example of high integrity and ethical behavior. For example, in the movie, Nick Lesson as the general manager didn’t practice the ethical behavior and integrity. He told his assistant to create an error account called 88888. Besides, once one of his team members named Kim Wong made mistake that lead to the loss of 20 contracts, Nick helped her to cover up the
THE MOST SHOCKING ALARM BELL ABOUT FRAUDULENT
Introduction On February 26, 1995, the oldest British Bank’s declared bankruptcy due to fraud caused the warning bells for many other organizations about the level of danger fraud can cause. Nick Lesson, a guy who comes from a background of the working class, had been working for Royal Bank Coutts, Morgan Stanley for a couple of years until he finally joined the Barings. He was assigned a job in Barings (Jakarta) to sort out a back-office mess that involves about £100 million in share certificate. After successfully completing his job assignment, Nick was transferred to Barings in Singapore to work as a derivative trader for both Singapore and Japan. Nick caused the lost for Barings Bank of almost 1.4 billion due to the enormous accumulation of trading obligations that he had built up. Nick Lesson thought he could make up the loss by waiting for the market price to go up, but it never happened since the earthquake in Kobe in 1995 was totally out of his plan. Knowing that the bank wouldn’t be able to make up for the loss, Nick ran away with his wife and was caught afterward. Barings declared bankruptcy in February 1995 and was bought by Dutch Bank for £1.
In this report, we would like to discuss more about this case based on the COSO Framework to see the bigger picture on how Nick Lesson could commit such a huge fraud and also learn from that mistake.
Control Environment • Describe the internal control environment 1. High integrity and ethical behavior: board members and executives didn’t set a consistent example of high integrity and ethical behavior. For example, in the movie, Nick Lesson as the general manager didn’t practice the ethical behavior and integrity. He told his assistant to create an error account called 88888. Besides, once one of his team members named Kim Wong made mistake that lead to the loss of 20 contracts, Nick helped her to cover up the
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