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Former NAB traders jailed

Reporter: Heather Ewart

KERRY O'BRIEN, PRESENTER: Two rogue traders involved in a financial scandal at banking giant NAB
are behind bars tonight after a judge found they'd been enmeshed in a culture of malleable,
profit-driven morality that went off the rails. Senior trader David Bullen was sentenced today to a
minimum of 2.5 years' jail for his role in creating false profits on NAB's foreign currency trading
desk, which cost the bank $360 million. And junior trader Vince Ficarra will serve a minimum of 15
months. They're the last two men of a trading-room team of four to receive jail terms over a
scandal that severely damaged NAB's reputation and resulted in a major internal shake-up. With
fascinating insights provided by taped phone conversations of the dealers at work, Heather Ewart
takes a look at their high-risk culture and at whether other potential cowboys are likely to take a
salutary lesson from the outcome.

HEATHER EWART, REPORTER: It was a financial scandal that shook Melbourne's top end of town. By the
time it had run its course, it had claimed the scalp of the National Australia Bank's former chief
executive Frank Cicutto and put rogue currency traders in jail over unauthorised deals which cost
the bank $360 million. For one trader sentenced today, this is how it all began.

VINCE FICARRA (ASIC INTERVIEW, 18 FEBRUARY, 2004): We started like an average person and through
ambition got through, you know, jobs and have a bit of power. Power in that, you know, we're not
sitting behind a desk typing out emails for our boss. We're actually doing something and off our
own back making money.

HEATHER EWART: For an ambitious twenty-something like Vince Ficarra, it didn't get much better than
this: in the closed world of the trading room; dealing in millions of dollars; and getting hefty
bonuses for his efforts. That's until it all came unstuck.

STEPHEN MAYNE, BUSINESS COMMENTATOR: This trading scandal is one of the biggest six that the world
has ever seen and, yeah, there is a public fascination with how young blokes, big-talking blokes,
can suddenly put, you know, venerable institutions in jeopardy through their actions.

PETER HAYES QC, DEFENCE BARRISTER: There was evidence to show that people of upper senior
management knew or ought to have known what was going on.

JOHN HOOPER, HEAD NAB INSTITUTIONAL BUSINESS: With the wisdom of hindsight, the people we had
running our foreign currency option desk were not a good choice.

ASSOCIATE PROFESSOR PAMELA HANRAHAN, LAW SCHOOL, UNIVERSITY OF MELBOURNE: I think for individual
traders it will be a real wake-up call that they need to understand that this has personal
consequences for them and their families.

HEATHER EWART: It's a culture most of us are completely unfamiliar with; a place where the
occupants talk not in tens, hundreds or thousands, but millions - as an investigation by the
Australian Securities and Investments Commission revealed.

VINCENT FICARRA (ASIC INTERVIEW, 18 FEBRUARY, 2004): Basically take $33 million at a loss... or
around $33 million - I'm not sure of the exact number.

ASSOC. PROF. PAMELA HANRAHAN: It's a very performance driven culture. Not only in terms of "I want
to perform so that I'll make $10,000 or $50,000 or $100,000 more than I would otherwise," but it is
a very competitive culture.

STEPHEN MAYNE: And is it very, very blokey: lots of foul language; lots of big talking; you know,
lots of beer-drinking sessions.

ASSOC. PROF. PAMELA HANRAHAN: I think it does need an appetite for risk. It does need what some
economists refer to as "irrational exuberance".

STEPHEN MAYNE: These blokes think they are the master of universe, after a while. They come from
nowhere and they suddenly find themselves making $200-300,000 a year; they're doing hundreds of
millions of dollars of global trading deals and these people just start to think they can walk on
water.

HEATHER EWART: So much so that it seems the traders didn't ever contemplate the possibility of jail
for their actions. Even after they knew the game was up and the authorities were on to them. As
shown in these taped phone conversations, recorded by the bank itself on the trading room floor.

LUKE DUFFY, NAB FOREIGN EXCHANGE OPTIONS TRADING ROOM (TAPED CONVERSATION ON 22 OCTOBER, 2003): I
would suggest a f.....g custodial stay is fairly unlikely. You'll probably get a few thousand hours
of f.....g community service so you'll spend the next 10 years painting a f.....g scouts hall. I
mean how bad can that be? Keep fit, get a bit of sun. (Laughs)

GIANNI GRAY, NAB FOREIGN EXCHANGE OPTIONS TRADING ROOM (TAPED CONVERSATION ON 22 OCTOBER, 2003): I
hear you.

HEATHER EWART: It didn't quite work out that way. The head of NAB's foreign exchange options desk,
Luke Duffy, and senior dealer Gianni Gray copped jail terms for their part in the scandal, which
basically operated like this: in the early hours of the morning, when most of us were still in bed,
false entries were going into the bank's computer system, recording big profits to disguise massive
losses. One junior dealer sentenced today for his role claimed he was simply doing as he was told
and, as shown in the phone tapes, this is how he carried out the boss's orders.

VINCENT FICARRA, NAB FOREIGN EXCHANGE OPTIONS TRADING ROOM (TAPED CONVERSATION ON 22 OCTOBER,
2003): It's always really hard doing this shit.

LUKE DUFFY, NAB FOREIGN EXCHANGE OPTIONS TRADING ROOM (TAPED CONVERSATION ON 22 OCTOBER, 2003): Is
it? Why?

VINCENT FICARRA, NAB FOREIGN EXCHANGE OPTIONS TRADING ROOM (TAPED CONVERSATION ON 22 OCTOBER,
2003): Because you've got to tell the back office that the deeds are still to come or something or
some shit. Basically, it involves telling lies, which I guess I can do. I'm not impartial to
telling lies.

PETER HAYES QC: Everyone does it. Someone has made a bit of a loss and you start to hide it because
you're told, "Well, it's OK, we'll make it back," and then it becomes bigger and bigger and bigger,
and then, I guess, people just lose site of what's right or wrong.

JOHN HOOPER: Risk systems are either cumbersome and ineffective. They produced a lot of information
but it was quite difficult to wade through that and also people, a very small number of people,
chose to manipulate those systems to hide what they were doing.

HEATHER EWART: Vince Ficarra's barrister likens the whole scene to a big gambling den where the
stakes are high and so are the adrenaline rushes.

PETER HAYES QC: You take your money and put it down on the casino. I mean, you are betting on the
Australian dollar going one way or the Swiss franc going another way. There's an awful lot of
gambling involved. It's a gambling culture.

HEATHER EWART: And if you play the game, there are lucrative rewards in the form of bonuses.

VINCENT FICARRA (ASIC INTERVIEW, 18 FEBRUARY, 2004): As far as I was concerned a bonus is a bonus.
I'm 25 - only just turned 25 a month ago - a bonus of $100,000 is a lot of money to me.

ASSOC. PROF. PAMELA HANRAHAN: They are very significant amounts of money, but I wonder whether it
was entirely driven by money, rather than a desire, a competitive desire to be successful.

PETER HAYES QC: I use the analogy - maybe accurately, maybe not - with the Enron example in
America.

MAN (EXCERPT FROM THE FILM ENRON - THE SMARTEST GUYS IN THE ROOM): What the hell is he building in
there?

WOMAN (EXCERPT FROM THE FILM ENRON - THE SMARTEST GUYS IN THE ROOM): It was pride. But then it was
arrogance, intolerance, greed.

MAN (EXCERPT FROM THE FILM ENRON - THE SMARTEST GUYS IN THE ROOM): He is hiding something from the
rest of us.

HEATHER EWART: During investigations into the collapse of US energy giant Enron, documented in this
film, The Smartest Guys in the Room, junior employees were used to gather evidence against their
seniors. That sort of scrutiny wasn't applied to the middle and upper echelons of NAB, according to
Vince Ficarra's barrister.

PETER HAYES QC: Here, the older people seem to have said, "Well, look, we don't like what's gone
on. We're going to cut this out. We're going to make an example of these people," and the
authorities have concentrated on the young people on the floor. No-one has looked at how did this
happen for three years? How did they happen to have had a wrong profit and loss account for years?
Why didn't anyone pick it up?

JOHN HOOPER: My response really would be that ASIC brought the case against a number of our
employees and they did not bring cases against the senior management.

HEATHER EWART: But did senior management turn a convenient blind eye, as alleged in the courtroom?
The bank says "No" and asks us to have faith in its new accountability systems. But has that
brought about any real change in trading room culture?

STEPHEN MAYNE: I think you will still see a blokey, foul-mouthed, hard-working, hard-drinking
culture amongst these guys on the trading floors, but you won't have the lax accountability systems
in place that will allow them to rack up hundreds of millions of dollars of unauthorised losses.

ASSOC. PROF. PAMELA HANRAHAN: I think the reputational damage that the bank has suffered as a
result of this will make them really focus on whether they are our cultural issues that are
embedded within the bank that need to be addressed.

JOHN HOOPER: We spent the last two years working really hard on the whole infrastructure behind our
market's activity, as well as the culture and making sure people clearly understand what they are
employed to do.

PETER HAYES QC: Well, as long as you've got that kind of legalised gambling, where there is risk,
profit is king. I would have thought you're always open to this kind of abuse.

HEATHER EWART: The gamble is over now for the convicted members of the old NAB trading room team -
they lost. Whether they blame themselves or the bank, their careers in the financial sector are
finished.