Daiwa Bank's $1.1B unauthorized trading — a Japanese bank lost its US business

Toshihide Iguchi was an Executive Vice President and U.S. Government Bond trader at Daiwa Bank's New York branch. In 1983, he lost $70,000 trading Federal Reserve Notes. To protect his reputation, he concealed the loss and continued trading to recoup it. The losses grew over 12 years.

Iguchi managed both the trading desk and the Securities Custody Department, a critical failure in segregation of duties. This gave him control over trade records and the ability to conceal losses. In July 1989, he and two junior traders made a $3 billion bet on U.S. Treasury Bonds and lost $350 million. The total unauthorized losses reached $1.1 billion.

In September 1995, fearing discovery, Iguchi wrote a confession letter to the president of Daiwa Bank detailing all unauthorized trades over 12 years. Daiwa initially instructed him to continue concealing the loss. Two weeks later, Daiwa reported to Japan's Ministry of Finance, which ordered a two-month delay. Daiwa's US lawyers advised immediate reporting to US regulators.

Daiwa reported the loss on September 18, 1995. Iguchi was arrested at his home in New Jersey. He was sentenced to four years in prison. Daiwa Bank was criminally indicted in November 1995 and ordered to leave the US market. The bank closed its US operations in 1996 and completely withdrew from overseas banking by 1998. The $1.1 billion loss and the concealment cost Daiwa its entire international business.