By John Thackray

So far we've had L'Affair Leeson according to a highly suspect version distributed by the Bank of England and Barings. Now it's Leeson's turn to tell his side. Rogue Trader: How I Brought Down Barings Bank and Shook the Financial World (Little Brown) hit the stores on both sides of the Atlantic last month, and has climbed to number 11 on the British best-seller list, a position it richly deserves. It is a tale told through the prism of the British class system: how a working class settlements clerk becomes mythologized as a Wonder Trader and is given too much slack by patrician and inept bosses.

Upwardly Mobile

Leeson first won accolades for sorting through a £100 million mountain of unreconciled share certificates in Baring's Jakarta office. His reward: a position heading up both Barings' trading and back office operations at SIMEX. Overworked and understaffed, Leeson was unable to stanch the flow of reconciliation errors, which ended up in an error account-a standard practice he says.

One day he was ordered to open a second error account in Singapore. "We don't want to be bothered with all the tiny errors you are clocking up -over 50 a day. The auditors will start asking questions," the London boss reportedly said. Leeson then created error account 88888 (a lucky number in Chinese). Although later London reversed itself because it had a new computer than could handle these transactions, it failed to wipe 88888 from the system.

"By the way, why do you make so many errors?" the official asked.

"If you saw the floor here, you'd understand. It is utter chaos, but the business is good," Leeson responded.

Leeson put all the big bloopers that might have angered supervisors into 88888. He also learned how to make real and bogus offsetting transactions to make the account appear inactive in the month-end printouts. As the account grew, Leeson was driven into bigger offsetting purchases of futures and sales of options. To fund positions and margin calls, Leeson relied on the incompetence of Barings, which wired money on demand. His scheme would be "unthinkable in any other bank, certainly unthinkable at Morgan Stanley, but my lines of communication with London were so vague that nobody knew who I reported to," he writes.

At one point 88888 was down £6 million, but after executing some risky trades Leeson reduced the losses to zero-and swore never to touch it again. Alas, he did not have the strength of will. "I was probably the only person in the world to be able to operate on both sides of the balance sheet," he says. "It became an addiction."

Slippery Slope

If that seems morally vacuous, so be it. Ostensibly running an operation restricted to arbitrage with no overnight positions and no proprietary trading, Leeson's addiction got worse and worse. In 1994, Barings reported a pre-tax profit of £100 million. By then account 88888 was £23 million in the red. In order to bring in enough option premiums to fund his losses, Leeson took to selling completely unhedged positions. When the market went against him the losses hit £50 million.

Meantime Leeson's persistent flow of faxed requests for funds were met with no questions asked, thanks to a combination of ineptitude and a blind faith in Leeson's purported prowess. Eventually Barings had to violate Bank of England ceilings on transfers of share capital abroad in order to fuel Singapore's hunger for funds. At a time when 88888's losses stood at around £150 million, Leeson visited London over Christmas and was introduced to Barings' CEO. "He's such a red hot trader that I've arranged for him to come in overnight and keep trading the Nikkei," he claims his superior told the CEO. "You can't keep Nick away from the floor. He's an animal. He's just insane. You should see the way he takes the market on. He's second to none." With a mixture of gloating and shame, Leeson imagines the look on their faces if he blurted out the truth.

Two months later Leeson resorted to forging correspondence to keep up the house of cards and deceive auditors Coopers & Lybrand. This Rubicon passed, he decided to double up on £200 million in losses. And London continued to fund him blindly. By the middle of February 1995 Leeson had "absorbed something like £300 million of funding-when the entire share capital base of Barings Bank itself was just £470 million."

As the end approaches his myopia is just like an addict's. He tries unavailingly to push up Nikkei futures and then walks off the set. At a North Borneo resort he blinks incredulously at a newspaper headline on the collapse of Barings.

No Charm, Good Pace

Thanks in part to capable ghosting by Edward Whitley, Rogue Trader is a well-paced yarn. Though Leeson is a less-than-charming personality, he is not cardboard. We are treated to his ambitious mother and the hero's grief at her death, his plasterer father who thinks being stuck in blue-collar Watford is no bad thing. Then there is the meeting with Miss Right, Lisa, who is currently working in a tea shop and hoping to qualify as an airline hostess on the Southeast Asia run so she can visit Nick.

Above all the book is a unique sociological (and often scatological) picture of floor trading and traders. Here, for instance, is a scene in the traders lounge at SIMEX: "It was full of armchairs where traders crashed out, farting and burping and nursing their hangovers. The lavatories were always full of puke, blocked up and with footprints on the seats where everyone squatted rather than sat to have their crap. I had an upset stomach, but by the time I'd found a half presentable lavatory my bowels had miraculously shriveled up. All the same I'd thrown up at the smell of the rest of the puke." There are unsentimental excursions to pubs in Watford (where Nick's best friend liked to unzip his fly and place its contents in way of ladies' hands), bars in Singapore (where Nick once "moons" a group of airline hostesses and gets in trouble with the law), and more bars in New York and Dublin. In Tokyo, besotted with beer and sake, Nick's companions throw raw fish at an elderly geisha playing a guitar.

It was only natural that Leeson should seek to offload some of the responsibility for the disaster on his superiors. But the evidence he accumulates against them is credible, detailed and vivid. Rarely in the annals of business has a management been so delusional and out of touch with reality.

Legendary trader Paul Tudor Jones abruptly quits the software business, leaving his much-hyped software firm in need of a buyer...and fast!

"Stick to your knitting" is one of the hoariest business management clichés around, and last month Paul Tudor Jones decided to do just that. After less than one year in the software business, he opted to end his financial commitment to Tudor Software, which employs more than 40 people. Clearly the news was a shock to president David Hirschfeld and his minions, who were hyping their product and recruiting staff right up until the moment the plug was pulled.

So what went wrong? It had seemed a great strategy to "black-box" the brain of Paul Tudor Jones and give it a slick name like Ranger. But the real brain of the famous trader clearly wasn't happy with the fact that the world didn't immediately beat a path to his door. At the time the software venture was founded, Wall Street wondered if Jones would tolerate the comparatively low rates of return, the long payouts and the steep development dollars that it would take to succeed. Evidently not.

Ranger is basically Tudor Investment's own in-house software, tricked out in a fancier GUI. Designed for hedge funds to help their traders identify profitable deals and analyze large inputs of historical data, Ranger has so far functioned as a stand-alone package. It would take a substantial infusion of capital to develop the product for multiple platforms and operating systems.

Still the system's analytical capabilities are impressive. For example, Ranger can correlate any number of market factors over almost any time interval, and then can be queried to identify those time periods where the correlation is strongest. For someone, an infusion of R&D funding might be a good long-term investment. But unless Hirschfeld can quickly find a buyer, all this capability will go up in smoke.

In her own way Lisa Raiti is a pioneer. When she worked at Standard & Poors, Raiti was one of the first people to develop the complex ratings criteria for triple-A rated derivative product subsidiaries. Now she is forming a new consultancy for banks, brokerages and insurance firms. Raiti's goal for her month-old firm: "Our emphasis will be on structured solutions, including highly rated ventures for credit sensitive businesses, and we will offer capital and risk management solutions."

Like Murphy Brown and her baby, Raiti had not settled on a name for her consultancy as of press time. Indeed, it was only in mid-February that Raiti left her position as a managing director at Centre Financial Products, where she marketed triple-A derivatives subsidiaries.

A native New Yorker-Raiti was born in the Bronx-she is accustomed to doing things at top speed. Though she originally studied civil engineering at Columbia University, Raiti went to on to get her MBA from New York University's Stern School of Business. Before starting her career at S&P, she spent more than six years in corporate finance, managing cash flows and large-scale projects for Bristol-Myers Squibb and ABC.

The new business may be shrewdly timed to capitalize on recent dramatic shifts in credit enhancement. "Derivatives firms have taken some blows lately," notes Raiti. "There is a public perception that they are more risky, and so for these firms, maintaining their credit ratings in the current environment is a top priority." Furthermore, she believes the recent spate of new triple-A subsidiaries, structured investment vehicles and related joint ventures point to a ripe market for her brand of advice.

Seminars on risk management technology don't usually generate much in the way of fireworks. But that's what happened at the International Swaps and Derivatives Association's annual conference, held in San Francisco on March 6-8.

Seizing the center stage at a seemingly innocuous panel entitled "Technology for Risk Management" was Harpal Sandhu, president of Integral Development Corp., who ruffled quite a few feathers among his fellow panelists by predicting that the expensive integrated risk management systems they sold might soon be replaced by Internet technology. Sandhu, who cofounded Infinity Financial Technology in 1989 and worked at C*ATS Software, is launching RiskNet, the first Internet-based market risk management system. Sandhu peppered his remarks with two noteworthy pieces of "Netspeak."

The "Inter-network": According to Sandhu, the Internet is just the Mother of all networks. He predicted that in the near future it will give firms access to centralized processing capabilities, real time data feeds, and distributed data servers. Smaller firms in remote locations would be able to access their data and high-tech applications via the Internet without investing in expensive hardware.

The "Intra-net": This, according to Sandhu, will allow larger institutions to connect their centralized data and applications to far-flung outposts via simple garden variety Web browsers instead of the expensive systems they now have in place.

Some of Sandhu's colleagues claimed his ambitious vision ignored the security concerns of firms who fear sending highly sensitive financial information over the Net. Sandhu dismissed the notion, arguing that in the late 1970s skeptics predicted that security fears would prevent people from using ATM machines.