Who Is Nick Leeson? Why Was He Sent to Prison?

Who Is Nick Leeson? Why Was He Sent to Prison? Any expert trader can tell you trading may be lucrative. But it’s risky, so you might lose money.

When someone else loses your money, particularly a huge bank, it’s much worse. Nick Leeson did it.

Leeson was a promising young trader at England’s Barings Bank in 1995 until he lost $1.3 billion in dangerous derivatives transactions.

Leeson spent four years in jail when the bank folded. Learn how Leeson became a rogue trader by reading on.

Nicholas William Leeson was born in Watford, Hertfordshire, England, on Feb. 25, 1967, to a plasterer and nurse. Instead of college, Leeson became a bank clerk. He worked at Morgan Stanley and Barings Bank, among others.

At age 27, he became a star derivatives trader at Barings Bank’s Singapore headquarters. He became general manager of the company’s Singapore trade branch.

Barings customers hired him to trade arbitrage on the Nikkei 250, Tokyo’s primary index.

Losses and a Doubling Strategy

Leeson’s career at Barings took off, and he managed Singapore futures. Leeson, a futures trading superstar, raised his employer’s revenues by millions.

Barings had unknowing losses. Leeson blamed a coworker’s mistake. To recuperate, he performed unapproved and dangerous transactions using consumers’ money. He disguised the losses in an erroneous account named 88888.

He started doubling riskily. Every time he lost money on a deal, he doubled his wager to recover. He drained the banks’ reserves to keep it operating, causing $1.3 billion in losses.

Leeson bought 20,000 futures contracts in three months, accounting for one-third of the bank’s losses.

Early 1995, when the Kobe earthquake rocked Japan, his frantic efforts to recoup his losses failed. He wagered the Nikkei would climb. The following several days, he gambled on a swift reversal but lost additional Barings’ money.

The Crimes

Leeson left Singapore to escape prosecution when his preparations unravelled, leaving behind a written confession.

His offences were prosecuted in Singapore after he was extradited from Frankfurt. He faced 14 years in jail for 11 offences in Singapore.

Leeson lost slightly under $200 million in trading. When he placed riskier bets on futures, attempting to lessen or erase his losses, that soared to $1 billion (almost double Barings’ available-capital).

His transactions would have been cash neutral if he had obeyed his employer’s guidelines. Traders using this method don’t increase capital.

Clients own profits and losses. Commission was Barings’ sole remuneration. The bank only allowed a restricted amount of proprietary deals.

Leeson pleaded guilty to two charges of misleading bank auditors in December 1995. He was sentenced to 612 years in a Singapore jail. He served four years before being released early due to colon cancer.

ING purchased Barings for £1 in 1995, rescuing company from bankruptcy.

Leeson’s Legacy

Nick Leeson lost $1.3 billion and brought down a 230-year-old bank. In 2008, a Société Générale trader called Jerome Kerviel lost more than €4.9 billion (more than $7 billion) in unapproved and fabricated transactions.

Leeson’s case increased internal controls and trade audits. A trader seeking to recoup losses tends to risk more money.

Published Works

Leeson overcame obstacles and succeeded. His book, Rogue Trader, described his rise and fall as a trader and his employer’s downfall. 1999’s Same Title starred Ewan McGregor.

Back from the Brink: Coping with Stress was his second book. It recounts chats with psychotherapist Ivan Terrell and offers remedies for financial troubles, personal hardships, sickness, and addiction.

Personal Life

After his release, eeson returned to Britain. Later, he relocated to Ireland, remarried, and began speaking about dubious financial activities. Leeson completed his psychology degree in 2001 and had a kid in 2004.

In 2005, he became commercial manager of Galway Football Club, rising to CEO before departing in 2011.

Today, he advises corporate clients on risks, governance, and compliance.

The Bottom Line

Nick Leeson destroyed England’s biggest bank single-handedly. Financial savvy helped him climb to prominence, but fraud and dishonesty destroyed everything.

Because of him, banks have tighter internal procedures to prevent such attacks. He helps firms and universities evaluate risks and review governance arrangements.