10 Biggest Losers In Finance
Rogue trading makes headlines. The idea of a single person losing millions and occasionally billions of dollars is always interesting, but it is even more so when that person is losing other people's money. In this slideshow, we look at 10 traders and fund managers that became famous for their very public losses.
Nick Leeson: Lost $1.3 Billion
Nick Leeson is one of the most famous rogue traders of all time. In 1992, Leeson was a 28-year-old rising star, with his magic touch allowing him to become the head of Barings Bank operations on the Singapore International Monetary Exchange.
Leeson incurred heavy losses through unauthorized trading of large amounts of Nikkei futures and options, and hid his losses in a secret account. The breaking point was when he placed a short straddle on the Nikkei. An earthquake hit Kobe the next day - sending the Nikkei lower - and resulted in a major loss. Leeson then made even riskier bets, leading to further loses and inevitably the bankruptcy of Barings in 1995.
John Rusnak: Lost $691 Million
John Rusnak was hired by Allfirst Financial, a subsidiary of Allied Irish Bank, in 1993 as a currency trader. In 1996, Rusnak began taking larger risks on the Japanese yen. By 1997, he had lost $29.1 million, which grew to $300 million in 2001. He managed to hide his losses and make it appear as though the bank was making money, which resulted in a collection of more than $433,000 in bonuses.
After writing $300,000 in options, his total losses reached $691 million. Rusnak received a 7.5-year jail sentence and is on the hook for paying back the full $691 million. (For more on how to write options, check out our Options Basics Tutorial.)
Yasuo Hamanaka: Lost $2.6 Billion
Also known as Mr. Copper, Yasuo Hamanaka was a trader for Sumitomo Corporation specializing in copper. At one time, he was said to control over 5% of the world's copper market.
The range of his activities from 1986 to 1996 have raised questions about whether he was a rogue trader or a member of a price-fixing conspiracy. Hamanaka served seven years of his eight-year prison sentence from 1998 to 2005.
Liu Qibing: Unconfirmed Losses Up To $1 Billion
Liu Qibing (a man who may or may not have been a senior metals trader for the Chinese government), took a huge bet that copper prices were going to fall. Consequently, copper prices rose substantially, leading to massive losses.
The paper trail led back to the Chinese State Reserve Bureau, and the Chinese government tried to depress prices with claims that copper reserves were five-times larger than previously estimated, and denied Qibing has even existed to place a short. Because of the incongruous information from the Chinese government, the extent of losses are still up for debate, as are the mysterious whereabouts of Liu Qibing.
Brian Hunter: Lost $6.5 Billion
Brian Hunter was a trader for the hedge fund Amaranth Advisors. He took a gamble in natural gas futures, and after hurricanes Katrina and Rita hit in 2005, the price of natural gas rose nearly three-fold, earning Amaranth huge profits, and attracting more investors. In March of 2006, Traders Monthly named Hunter No. 29 on their list of top traders.
Hunter placed the same trades in natural gas futures in 2006. Consequently, as the threat of severe hurricanes diminished, so did the price of natural gas, resulting in losses of over $6 billion for Amaranth. (For more, see Losing The Amaranth Gamble.)
Jerome Kerviel: Lost $7.1 Billion
In 2008, Jérôme Kérviél took the title as the worst rogue trader in history, losing an estimated $7.1 billion dollars for Société Générale. His losses occurred from unauthorized speculation in European futures. Since he was initially employed with Société Générale in its compliance department before becoming a trader, he was able to manipulate the system and hide his losses.
John Meriwether: Lost $5.8 Billion
In 1994, John Meriwether founded the Long-Term Capital Management (LTCM) hedge fund, which managed more than $100 billion in assets. LTCM attracted investors with their promising arbitrage strategy that could theoretically reduce the risk level to zero. In 1998, LTCM made a bet that the troubled Russian financial markets would revert back to normal, and took a large, unhedged position Russian debt. The fund ultimately collapsed when Russia defaulted on its debt.
Fears of a larger financial crisis spurred the U.S. federal government to step in with a $3.65 billion bailout loan once LTCM's losses reached $4 billion. This allowed LTCM to liquidate in an orderly manner in early 2000.
Julian Robertson: Lost $17 Billion
Julian Robertson is one of the few losers who also made the greatest investors list. He started the hedge fund firm Tiger Management in 1980. Between 1980 and 1996, he turned an $8 million investment into $7.2 billion. Between 1998 to 2000, Robertson failed to participate in the tech-stock craze (or tech bubble), which he deemed irrational. A value investor, Robertson placed big bets on stocks through a strategy that involved buying what he believed to be the most promising stocks, and shorting stocks he viewed as the worst.
When Robertson shorted tech stocks during the tech bubble, the greater fool theory prevailed and tech stocks continued to soar. As a result, Tiger Management suffered massive losses, with all funds closing in 2000 at a value of $6 billion (previously worth $23 billion in 1998).
Peter Young: Lost $400 Million (Pounds)
Peter Young was a fund manager for Morgan Grenfell Asset Management (later acquired by Deutsche Bank). In 1996, Young was fired when it was discovered the European Growth Trust fund under his management had some irregularities.
Young had secretly created several companies in order to exercise stock warrants for his benefit. In 1998, Young was charged with conspiracy to defraud; however, in 2000 Young was found mentally ill and unfit to stand trial due to self-inflicted injuries and an appearance at the courthouse dressed as a woman and answering to the name "Elizabeth".
Hunt Brothers: Lost Undisclosed Amount
Brothers Nelson Bunker Hunt and William Herbert Hunt attempted to corner the silver market by purchasing approximately 100 million ounces of silver bullion throughout the 1970s, causing silver prices to soar in January 1980.
Silver prices ultimately crashed on March 27, 1980, on a day now deemed as Silver Thursday. Nelson Hunt was fined $10 million by the United States Commodity Futures Trading Commission for attempting to control silver prices.
No Guarantee That Risk = Reward
When a trader begins to feel that he or she has a special gift for sniffing out money-making positions, it can be a dangerous situation. Unfortunately, luck is a fickle friend. When these formerly 'magical' traders start losing, they often look for ways to magnify their bets and win back their losses. Aside from the financial damages that rogue traders inflict upon the market, they do serve one very important function; they remind us that seeking exceptional returns means taking on equally exceptional risk.
For further reading, be sure to check out Massive Hedge Fund Failures.