Anatomy of a Scam Case Study, Baring Investment Bank  (BIB) & Baring Futures Singapore (BFS) - Accounting Assignment Help

Assignment Task

Anatomy of a Scam Case Study 
It was a startling discovery. The staff at Baring Futures Singapore (BFS) pried open a drawer  always kept locked by Nicholas Leeson in February. "There was a stack of paper," recalls visiting  official Tony Railton, senior clerk for futures and options settlements at Barings group  headquarters in London. "There were holes in some." London manager Brenda Granger says  she saw what looked like a "fraudulent document." And Barings settlements director Tony  Gamby remembers finding "some cut-and-paste material" and a "letter with a scissor-cut around  the signature." These were some of the clues that the three Barings employees provided Bank of  England investigators. The results of that probe were finally released last month. The report  mainly blames Leeson, 28, for the Feb. 27 collapse of 233-year-old Barings, Britain's oldest  merchant bank. Because of limited access to Barings documents in Singapore, the investigators  say, they could not shed light on the most disturbing questions. Among them: Was the rogue  trader part of a conspiracy? Detailed answers may come soon from Singapore. "The Bank of  England report looks like it intended to put most of the responsibility on Leeson," says one  analyst in the Lion City. "The British may not like it when the Singapore report comes out." Adds  a local banker: "Some other people could be charged for breaching fiduciary trust." 

Prepared by two Price Waterhouse executives, Nicky Tan and Michael Lim, the Singapore report  is expected to be more thorough. It may spread blame more evenly among Leeson, Barings  officials and British regulators. The Singaporeans, who enjoyed the full cooperation of new  Barings owner ING Bank of the Netherlands, spoke at length with Barings executives in London,  Singapore and Tokyo. Like the British probers, they did not interview Leeson, who is being held in a German jail. But  they sat down with James Bax, Singapore-based regional manager for Baring Investment Bank  (BIB), who had warned Barings in London about letting Leeson handle both trading and  settlement. The Bank of England was not able to talk to Bax directly, but received comments  from him on the report's proposed conclusions. 

The British probers came down hard on Leeson, who is fighting extradition to Singapore. (He  wants to be tried in London.) The Bank of England says the trader appears to have fabricated  documents purporting to show that New York securities trader Spear, Leeds & Kellogg (SLK)  owed Barings 7.778 billion yen ($86 million). The phoney files were all part of Leeson's efforts to  hide losses of $1.3 billion incurred over a two-year period from unauthorized futures and options  trading on the Singapore International Monetary Exchange and the Osaka Securities Exchange.  Leeson had been missing for days when Barings staff forced his drawer open. He had abruptly  left a Feb. 23 meeting with Railton to discuss that 7.778-billion yen receivable and never  returned. 

The Bank of England has established that Leeson used a special account, bearing the number  88888, to conceal his losses. The account was set up soon after he arrived in Singapore in 1992.  While the report does not specify who opened it, the investigators say Leeson was managing it.  The broker later arranged for 88888 to be kept out of most reports sent to London. Because of  the subterfuge, Leeson managed to appear a winner, "a star," as an ex-colleague put it,  seemingly responsible for huge profits. Barings rewarded him handsomely. Named general  manager of BFS in 1993, he got a $195,000 bonus for that year. For his 1994 performance,  Leeson was on track to receive an extra $689,000. In reality, since about October 1993, Leeson had been accumulating far greater amounts in  losses - $332 million by the end of 1994, ballooning to $1.3 billion by the time Barings collapsed.  About 75% of the red ink was the result of trades between Jan. 1 and Feb. 27, when the  venerable British bank finally fell. Betting that the Nikkei stock index would rise, Leeson bought  heavily into Nikkei futures, holding on to them even after an earthquake hit Kobe in January.  When he disappeared, he had more than 70,000 futures contracts open.

 Outline and elaborate FIVE (5) operational risks failure at Barings Bank.
b) Who is responsible for the failure at Barings Bank? Why? 

c) Does the Barings Board of Directors should be held accountable for the losses? Critically  analyse the performance of Barings’ board of directors? 
d) Was the existence of the 88888 Account one of the fundamental problems at Barings  Bank? 
 
e) If you are the Risk Manager of Barings Futures Singapore (BFS), discuss the potential  risk mitigation that you can take in order to curb the situation? 
 

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