...conduct. The film didn’t exactly show if Barings had a code of conduct for its employees. However, it is reasonable to assume that there was one. Nevertheless, senior executives allowed key employees, who were generating sufficient profits for the company, the freedom of actions. 3). The performance and incentive compensation targets portrayed in the movie were unreasonable and unrealistic. For instance, Leeson got a call in the middle of the night from the Head of the Barings Financial Products Group in London, Ron Baker, telling Leeson that he has to generate another two million pounds next month to secure their bonuses. Such unrealistic goals provoked Leeson to manipulate incentive compensation plan results by hiding losses in an account 88888 to make various transactions look profitable. 4). Since Nick Leeson was able to hide the reality of his actions for a while; it is safe to assume that fraudulent financial reporting wasn’t controlled at any level. When Mui Mui was conducting an audit she had noticed that 7.78 million were not on any Receivables. Leeson was able to forge the confirmation and the side from Bank Statement to make it look like this amount was indeed received....
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...A Project on All That Glitters: The Fall of Barings Bank A CASE STUDY ON RISK MANAGEMENT AND INTERNAL CONTROLS Introduction: In 1995 Britain’s oldest merchant bank of two hundred years came to a dramatic and fatal halt. The bank was Barings. The demise of the bank was brought about as a result of the actions of a derivative trader, Nick Leeson, stationed in Singapore. Without a careful and considered review one may be tempted to conclude that the blame rests solely on Nick Leeson. But if you think with analytical mind, you will ask: how is it possible that this one man was able to cripple a financial giant? What was the role of senior management in this situation and did they contribute to the demise? How effective were the internal control systems, Risk management system and was the Singapore operations managed effectively? The answer to these and similar questions would be indeed interesting and insightful in analyzing the debacle of Baring Bank. Reported on very widely in the nineteen- nineties, this bank collapse still holds significant lessons for those involved in the management of financial institutions. The objective here is not to prove definitively the exact cause of the collapse but to show, by way of a very narrow discussion, how certain deficiencies in internal controls and risk management systems impacted the bank and ultimately led to its collapse. When Barings collapsed it had a capital of approximately $600 million. Contrast this with...
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...ARUCAN, PEARLNETTE GAY JUNE V. MANAGEMENT ADVISORY SERVICES MWF 1:30-3:30 ROBERT KIYOSAKI Who is Robert Kiyosaki? A fourth-generation Japanese American, Kiyosaki was born and raised in Hilo, Hawaii. After graduating from Hilo High School, he attended the U.S. Merchant Marine Academy in New York, graduating with the class of 1969 as a deck officer. He is an investor, businessman, self-help author, motivational speaker, financial literacy activist, and occasional financial commentator. Kiyosaki is perhaps best known for his Rich Dad Poor Dad series of motivational books. As a devout global financial literacy advocate, Kiyosaki has been a staunch proponent ofentrepreneurship, business education, investing, and that comprehensive financial literacyconcepts should be taught in schools around the world. Why did he filed for bankruptcy? Robert Kiyosaki filed for corporate bankruptcy through one of his companies, Rich Global LLC. Rich Global LLC filed for Chapter 7 bankruptcy protection on Aug. 20 in a Wyoming bankruptcy court. Kiyosaki and his bankruptcy attorney did not immediately respond to requests for comment. The company had been weighed down by a lawsuit filed by Learning Annex, one of Kiyosaki's earliest backers who had helped arrange his public speaking events earlier on. Bill Zanker, the founder and president of Learning Annex, sued Kiyosaki after he allegedly failed to pay a percentage of profits from his speaking engagements. A district judge in New York...
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...17th of January 1995 a huge earthquake struck Kobe in Japan. The Nikkei plummeted putting Leeson’s positions under a lot of stress. The Nikkei plunged to 17950 by the end of that week and Leeson started recording big losses. Leeson’s solution was however to ask for extra funds from London to meet his margin calls and continue trading. His view was that the move down on the Nikkei was temporary and he could ride it out. In the weeks that followed he almost doubled his futures position to 55,000 contracts. However the Nikkei did not recover and the margin calls kept coming. Eventually Barings could not meet the margin call and ended up collapsing with losses of more than £800 million. 3. Why did Nick Leeson establish a bogus error account (88888) when a...
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...FIN 444 MID 2 assignment FACULTY MzF How Leeson Broke Barings |The activities of Nick Leeson on the Japanese and Singapore futures exchanges, which led to the downfall of his employer, | |Barings, are well-documented. The main points are recounted here to serve as a backdrop to the main topic of this chapter - the | |policies, procedures and systems necessary for the prudent management of derivative activities. | |Barings collapsed because it could not meet the enormous trading obligations, which Leeson established in the name of the bank. | |When it went into receivership on February 27, 1995, Barings, via Leeson, had outstanding notional futures positions on Japanese | |equities and interest rates of US$27 billion: US$7 billion on the Nikkei 225 equity contract and US$20 billion on Japanese | |government bond (JGB) and Euroyen contracts. Leeson also sold 70, 892 Nikkei put and call options with a nominal value of $6.68 | |billion. The nominal size of these positions is magnificent; their enormity is all the more astounding when compared with the | |banks reported capital of about $615 million. | |The size of the positions can also be underlined by the fact that in January and February 1995, Barings Tokyo and London | |transferred US$835 million to its Singapore office to enable the latter the meet its margin obligations...
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...Topic: The biggest scams in the banking history Course: Banking Students: Nino Vepkhvadze, Gohar Trchunyan, Giorgi Menteshashvili & Giorgi Paksashvili Date: 04.06.2012 A fraud, by definition, is the act of deliberate deception of people to secure an unlawful gain. These are mainly for the purpose of defrauding money as well as prestige rather than immediate financial gain. A study by BBC has revealed that the average woman lies twice a day while a man tells three lies a day. However, the lies they tell differ from each other a lot, both in essence and the results yielded. This is why we decided that the frauds and scams of the banking industry as well as their influence on other financial institutions would be quite interesting and intriguing. Let us together investigate how far a human mind can go to earn as much money and glory as we desire. Jerome Kerviel’s case-Societe Generale on the edge In January 2008, A French court sentenced former Société Générale trader Jérôme Kerviel to three years in prison for his role in one of the world's biggest-ever trading scandals and ordered him to repay his former employer €4.9 billion—a sum it would take him 180,000 years to pay at his current salary. In convicting Mr. Kerviel of breach of trust, forgery, and unauthorized computer use, the judge also handed Mr. Kerviel a lifetime trading ban. The prison sentence handed to Mr Kerviel is for five years, of which two years were suspended. Throughout the trial, Mr. Kerviel and...
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...from Morgan Stanley, was put in charge of Barings Futures Singapore (BFS). The unit’s job was simply to trade futures contracts for clients. Leeson was put in charge of both the trading floor and transaction settlement operations. A year later, BFS began to trade using its own account, attempting to take advantage of the difference between futures on the Japanese and Singaporean exchanges to make a profit. Such arbitrage, referred to inside Barings as “switching”, was seen as “essentially risk-free and very profitable” by management in London, including its chairman Peter Baring. Table from slideshare.net Leeson, however, set up a secret account, number 88888, which he used to invest in the Japanese stocks, specifically in the Nikkei 225. Luck was not on Leeson’s side because by the end of 1994, account 88888 had lost about £200 million, but Barings’ London management were not aware. Leeson, as head of both front and back offices of the company, was able to disguise his losses as debts owed by Barings clients. However, on the morning of January 17, 1995, the devastating Kobe earthquake caused $100 billion in damage and shook its bond and stock markets. Leeson continued to invest in Nikkei 225 thinking that the country’s economy will recover fast from the earthquake, but it did not. Leeson’s losses rose to more than £800 million and he was no longer able to disguise them from Barings...
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...Overview This article looks into the details with regards to the collapse of one of world’s oldest (~233 years old) and most respectable bank in London, Barings Bank on 26 Feb 1995 due to uncontrolled and well-concealed derivatives trading arising from ethical improprieties of a person called Nick Leeson in their Singapore office. End result is ~$1.4 billion in losses. On the surface, we may be tempted to conclude that the blame rests solely on him but an in-depth & analytical mind would ask the simple question on “how is it possible that this one man was able to cripple a financial giant?” Further possible questions which would pop up would be “What was the senior management’s role in this situation and did they contribute to the demise? How effective were the internal control systems and was the Singapore operations managed effectively? etc” In short, for this incident to happen, it involved more than one factor and similarly for this to be avoided, it also involved more than one lapse or system to be further reinforced and closed. As such, let’s take a deeper look into these aspects in the subsequent paragraphs. Factors behind the collapse of Barings Bank Nick Leeson started well as a star trader and was tasked as SIMEX floor manager by Barings to manage the Singapore trading operations to profit from low risk arbitrage opportunities with derivatives contracts between SIMEX and Japan’s Osaka Exchange. Arbitrage involves going long in one market and short in the other...
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...Rogue Trader How many times can you go double or nothing before you wind up a billion pounds in debt? In “Rogue Trader”, a film based on the life on Nick Leeson, we get a glimpse into this real world dilemma. The drama begins with Leeson’s promotion to general manager of Barings Futures Singapore. As general manager, he faces a personal quandary and must decide whether to cover for a friend and coworker who made an honest mistake (one that resulted in the loss of a substantial amount of money) or to turn the same person in to face termination. Leeson chooses loyalty to his friend over loyalty to the bank, and covers up the losses by creating an error account. This account served to hide said losses while Leeson tried to make back the money that was lost. After experiencing additional losses, Leeson hit a lucky streak and was able to make up the money due to market growth. However, the profound effects of making so much money in the market quickly got to his head. Riding on the coattails of this success, coupled with other catalytic factors that created another loss, he was once again put in the same position to make up lost dollars in the market. From this point on, we see Leeson gamble on the market, doubling down and hiding his losses from everyone around him until his debt becomes insurmountable. Based on Leeson’s actions, the two COSO components most violated are risk assessment and control activities, of which many examples can be seen throughout the movie. Risk Assessment...
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...strategy on the market was simple, he simply thought about rising of the Nikkei 225 indexes all the time, he was playing on long position with, also he was playing short on Japanese gov. bonds, he used tactics of diversification of his investments. But, almost every trade ended up with a failure to him, because indexes were sharply decreasing during the second half of 80th and first half of 90th. 2. All Nicholas’ estimations were wrong, he almost all the time was betting that indexes will rise in the future and he was going va banque. 3. He knew, that “88888” account isn’t considered in London and he could use it to hide his failures. But, in the SIMEX, he couldn’t hide it, but why don’t use it as a costumer’s account, which is not tracked as seriously as corporate one!? 4. First of all, is that the firm gave him carte blanche in controlling both, front and back offices, he managed to hide his fails and “88888” error account. Another thing what helped him, was that he used all his losses, which were not withdrawn by the winners in his previous trades (the specific of Japanese futures market) because, there was no must to withdraw gains. So, it created an illusion of the profit existence for the company he worked for and didn’t make any clue to force auditors go deeply to all his frauds. 5. As it was said above, in the 3rd question, he managed to create this account as a costumer’s one. For SIMEX it wasn’t something special but for BSLL account wasn’t shown at all...
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...the essay should identify and justify your selection of 2 components of the COSO framework that were most violated in the rogue trader movie In Rogue Trader movie Nick Leeson makes unauthorized trades and covers up losses which are sufficient to bankrupt Barings bank. While management thinks that Nick brings large profits to the bank, Nick hides losses under fake error account which people think belongs to a customer. Leeson is able to cover up his losses because bank's management allows him to run both the trading floor and the back office facilities. Nick is afraid of management finding out about his first loss and does things such as finding a new client, requesting funding and so on, to hide his losses and show profits. However, Leeson incurred even more losses, which he is not able to hide in the end. It's not Nick Leeson who collapsed Barings, it's Barings' internal controls and standards that were not present or violated and allowed one employee to bankrupt long standing bank. One of the most violated component of the COSO framework is the internal control environment of Barings. When Nick's unethical behavior at the bar got him to jail, management didn't care about his unethical behavior, all they cared about is to get him out of jail because he brings in a lot of profit. No one even sat down and talked to Nick in regards to his actions afterwards. Nick was given a freedom and power to act the way he wanted. Management didn't check or control him. When management...
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...American Laboratory Technology, Inc. 44 Industry Road. Corporate City, NJ 88888 (4340 555-4723 www.ALT.com January 30, 2015 Ms. Erica Christie, President ZMO Tech, Inc. 2222 Laboratory Drive. Research City, TX 77777 Dear Ms. Christie: I was very unhappy to read your letter of January 18 telling me about the failure of the thermostat in the Summit SCRR490. I regret the time and money your business has lost as a result of a malfunction in our product. Joan Rivers, our best technician, will be in touch with you this week to arrange a convenient time to come out and talk with you about the refrigerator. We will be glad to repair it, replace it, or refund the price of the product. Just make us aware of how you would like us to proceed. I realize that I cannot undo the damage that was done on the day that a piece of our equipment failed. To make up for some of the extra trouble and expense you incurred, let me offer you a 30 percent discount on your next purchase or service order with us, up to a $1,500 total discount. You have indeed been a loyal customer for many years, and I greatly value your continued business. I would hate to have this unfortunate incident spoil that relationship. I hope you choose to give us another chance. Just bring in this letter the next time you visit, and we’ll give you that 30 percent discount. Sincerely, David Beckham, President...
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...Barings bank, was founded in London, UK, in 1763 as a merchant bank. During 80’s it started to have big international success. And in 1995 it collapsed because of general manager in charge of setting up the trading operations in Singapore (Mr. Leeson). The whole story started when Mr. Leeson found out that there was an error, when one of his phone clerks sold the contracts rather than bought them. That day the loss was calculated to be 20,000 Pounds. The only thing he could do was to close the deal only in the upcoming Monday. Because of a busy day on Monday, Mr. Leeson forgot and now this was a problem that could affect not only the clerk but also him. So, he decided to hide this error permanently in an account 88888, but after some days this error could cost the firm 60,000 Pounds so this became a very serious problem that could cause Mr. Lesson troubles with his position in the company and also affect his bonuses (which until now were really high). So he decided to hide this error, and lots of others made by him or his team, which they reached the loss of almost 1 billion dollars. Why did Mr. Leeson behave that way? While reading the case, you can understand that one of Mr. Leeson’s ambitions was to become a floor trader. When he was sent to Singapore, his position was to control both settlement and floor operations and this was not a common practice for Bearings. This way he could control the firm’s operations and also in the same time work in the back office, which...
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...arbitraging price differences between Nikkei futures traded on the SIMEX and Osaka exchange, it was a low risk strategy meant to make small profits. Where Leeson went astray was when he began unauthorized speculation in futures on Nikkei 225 stock index and Japanese government bonds. These trades where highly risky due to the fact that they involved a highly leveraged strategy and depended solely on the markets movement upwards. This strategy is a double edged sword because even though it provided devastating results for Leeson it could of also provided incredible gains if the market would have gone up. Leeson essentially bet that the Nikkei was going to rise. Once the loses started coming in Leeson opened up a secret trading account, account 88888. The account was initially set up to cover a mistake done by one Leeson’s traders in which she mistakenly submitted a purchase order instead of a sell order. Leeson traded his way out of her mistake but found himself in the red once again due to his strategy and bullish sentiment on the Nikkei. As 1995 came along Leeson’s approach remained the same, on January 17th 1995 a 7.2 earthquake hit the Japanese city of Kobe, causing the Nikkei to plummet, one would think this would change Leeson’s approach but his loses where...
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