Nicholas Leeson was born on February 25, 1967, in Watford, Hertfordshire, England. Finding work as a clerk at the royal bank Coutts in the early 1980s, Leeson worked his way up to a derivatives trader for Barings Bank. While working in Singapore, he created a fake account to hide losses, but continued taking larger risks in an attempt to earn back losses. His scam led to the collapse of Barings and he subsequently served prison time in Singapore.
Nicholas Leeson was born on February 25, 1967, in Watford, Hertfordshire, England. The son of a plasterer, Leeson grew up in a working class neighborhood but always had high aspirations for himself. Teachers considered him a poor student and he graduated from school with only a few qualifications.
With no financial experience, Leeson managed to find work as a clerk at the royal bank Coutts in the early 1980s. This was followed by several other banking jobs, and in the early 1990s, he began work at Barings Bank—not only was it the United Kingdom's oldest investment bank, it was the personal bank to the queen.
Leeson worked at impressing his superiors and was soon promoted to the trading floor. Within a few years, he was promoted to manager of a new operation in futures markets on the Singapore International Monetary Exchange.
Leeson's London bosses trusted him implicitly, as he brought in large profits betting on the future direction of the Nikkei Index. He and his wife, Lisa, lived a life of luxury on his 50,000 pound salary with bonuses of up to 150,000 pounds.
In 1992, Leeson began making unauthorized speculative trades. These proved successful at first and made significant profits for Barings. Leeson appeared to be an exemplary employee. However, it was not long before things began to take a turn for the worse. At that time, a derivatives trader only needed to bring to the table a small percentage of the amount being traded, thereby making it possible to incur huge losses if the deal went sour.
Many of Leeson's deals did turn sour and he opened a secret account (numbered 88888, considered extremely lucky number in Chinese numerology) to hide his losses from the company. By late 1992 the account, for which Barings was responsible, was in the red by over two million pounds and by late 1994, the sum had grown alarmingly to 208 million pounds. Executives at Barings were none the wiser, and by the end of 1993, Leeson had made in excess of 10 million pounds, accounting for 10 percent of Barings's total annual income. The whiz kid could do no wrong in their eyes.
On January 16, 1995, Leeson placed a short straddle (a non-directional options trading strategy, involving substantial risk) in the Tokyo and Singapore stock exchanges. It was basically a bet that the Japanese stock market would make no significant overnight move. This seemed reasonable, as the Japanese economy was experiencing a rebound after a 30-month recession. However, the following morning, at 5:46 a.m. on January 17, 1995, the Great Hanshin Earthquake struck. Its epicenter was the prominent port city of Kobe, Japan. Its magnitude was measured at between 6.9 to 7.3, and it lasted 20 seconds and killed over 6,000 residents. Its effect was to cause massive upheaval in the Asian markets as well as in Leeson's plans.
Not to be outdone, and in attempt to recoup his losses, Leeson then embarked on a series of increasingly risky new investments. He bet that the Nikkei stock average would recover swiftly. This did not occur and Leeson was further compromised.
Leeson carried on requesting funds from Barings to continue trading, in the hope that he would rectify his losses. In three months he purchased more than 20,000 futures contracts—worth around 180,000 dollars each— in an attempt to move the market. His attempts were all in vain, and these trades totaled three quarters of the eventual 1.3 billion dollar loss suffered by Barings.
On February 23, 1995, two days before he turned 28, Leeson decided the situation was beyond his control and he would never redeem himself. He fled, leaving a note that simply stated, "I'm sorry." Barings executives discovered what he had done, were forced to inform the Bank of England. Thanks to Leeson, Barings bank went bust.
The 233-year-old Barings bank incurred losses of 827 million pounds, or $1.4 billion at the exchange rate of that time. The sum amounted to twice the bank's trading capital and reserves, and led to its immediate collapse.
Investigation and Trial
Investors lost their savings and 1,200 employees lost their jobs. Dutch bank ING agreed to assume the majority of Barings's debt and acquired the bank for one pound.
When questioned, Leeson claimed to have opened the 88888 error account to hide a 20,000 pound trade, made by one of his subordinates, which had been incorrectly recorded. In fact, over time, he used the account to cover numerous bad trades of his own. Leeson claimed never to have used the account for his gain but lawyers for Barings eventually found several bank accounts linked to Leeson, with a total worth in the region of 35 million dollars.
Barings was not entirely without blame. Leeson had been able to conduct his dealings in secret and hide his losses from the bank due to an administrative abnormality. Barings management had allowed him to perform functions usually done by two people. That is, in an unethical move, Leeson had acted as chief trader while also settling his own trades.
It was discovered during the investigation that in 1993, an internal memo had been written, warning the London head office of this very problem. "We are in danger of setting up a system that will prove disastrous," read the memo. Nothing was done to resolve the issue. In January 1995, SIMEX communicated their concern about Leeson's activities to Barings, but to no avail.
When Leeson and his wife went on the run, they first fled to Malaysia, then to Brunei and finally to Germany. It was there that the law caught up with him, and Leeson was arrested in Frankfurt airport on March 2, 1995, just less than two months after his first short straddle. After nearly nine months in Germany, spent trying to avoid it, Leeson was finally extradited to Singapore for trial and sentencing.
In December 1995, Nicholas Leeson was charged by the authorities in Singapore with fraud in the deception of his superiors as to the riskiness of his activities and the scale of his losses. They did, however, acknowledge that he had been given authorization for the January 16 "short straddle."
Leeson pleaded guilty to forging documents and misleading SIMEX and was sentenced to six and a half years in a Singapore prison, rife with vicious gangs. The sentence was back-dated to his arrest on March 2, 1995.
Devastated by this turn of events, Leeson's wife Lisa found work as an airhostess so that she could visit him regularly. It was not long before their marriage began to show signs of strain. The last straw was Leeson's brazen infidelity with Geisha girls and Lisa divorced him immediately.
Aftermath and Fame
While still in prison in 1996, Leeson wrote an autobiography, Rogue Trader, that detailed his acts. It was later made into a film of the same name, released in 1999, starring Ewan McGregor and Anna Friel. In the autobiography, Leeson placed much of the blame for his crimes on Barings's own deficient internal auditing and risk management practices. There were many observers who agreed with this view.
When he was diagnosed with colon cancer in 1999, with dire forecasts, Leeson was released from prison. He returned to the United Kingdom, where he underwent chemotherapy, losing both his hair and a great deal of weight. He was a shadow of his former self and his lavish lifestyle had certainly evaporated. He had no home and no work, but friends and family supported him during his recovery period.
Always a survivor, Leeson overcame his illness and went on to make money from his bad experiences. He was paid a considerable fee for his book to be serialized in The Mail newspaper. In 2001 he began studying for a psychology degree at Middlesex University in England, which he completed.
Describing himself as one of Britain's most sought-after speakers, Leeson is a regular guest on the after-dinner speaking circuit. He presents talks to companies on risk management and does conference speaking, based on his experiences.
In April 2005, Leeson was appointed Commercial Manager of Galway United Football Club and was made General Manager in November 2005. Following the success of his autobiography, Leeson co-authored Back from the Brink: Coping with Stress with British psychologist Ivan Tyrrell. The book, published in 2005, picks up the story where the first left off, including in-depth conversations with Tyrrell.
Leeson now lives in Barna, County Galway, Ireland, with his second wife, Leona Tormay, a beautician, and their three children: Leona's son and daughter from her first marriage and their own son, born in 2004. Leeson still deals on the stock market, but uses his own money.
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