1. 99002 vs. 88888 99002: Legitimate error account, every bank has one
88888: bogus error account, the 2nd hidden account
In order to conceal his unauthorized trades
SIMEX: thought it was a customer account
Barings: customer account borrow loans from them
In fact Barings is the “customer”

2. Arbitrage
Deft: practice of taking advantage of a price difference between two or more markets.
Example.
Buy in Nikkei: worth $100 million
Sell in Singapore: $100,001,000 ($1000)
What Nick did instead: held on to the contract, gambled on the future direction of the Japanese markets (approved by his superiors)
$100m*1%=$1m, resulted to an unhedged losses made losses escalated rapidly

3. Double Roles Nick’s double roles:
Front: floor manager for Barings' trading on SIMX (trade)
Back: head of settlement operations (calculate paperwork)
Deficient internal auditing and risk management practices:
Being suggested by internal auditor, Ash Lewis
Ignored by his supervisor, Simon Jones to save money
Should report to

4. Cover Losses 1. More Trade 2. Bring new clients 3. Cook the book
Aggressive & Asked money from Barings for “big clients’ loan”
2. Bring new clients
Big client: Pierre Beaumarchais, Swedish investment banker
Deep trouble: lost 7.78billion yen ($77.8million) by the end of 1994
3. Cook the book
Zero balance : changed general ledger, not the sub-ledger, made it looks as if Barings should collect money from SIMEX instead of paying

5. Cook the Book

6. Role Model
“...it was not actually terribly difficult to make money in the securities business,”
--Peter Baring, the Barings' Chairman of the Board
“People at the London end of Barings were all so know-all that nobody dared ask a stupid question in case they looked silly in front of everyone else.”
—Nick Leeson, Rogue Trader (1996)

7. Fraud Turning point: Lisa’s miscarriage
Decision: more aggressive to get out of his mess and go home
External Audit: Coopers & Lybrand
Accountant Mui Mui: 1994 year-end audit
Wild story
OTC trade between SLK (Spear, Leeds & Kellogg ) & Barings
Forgery
Cut & paste signatures; arranged for bogus bank transfer

8. Forgery
Attach Pat’s photo copy page