Rogues of Wall Street

CHAPTER 15 Turning the Tables on Risk

The survey of the major operational risk categories covered in the preceding chapters is noteworthy for the breadth and depth of their impacts. The losses discussed alone add up to over $60 billion. Table 15‐1 provides a summary of the various incidents that occurred in each category. It also highlights the fact that in many cases, a high‐profile incident is often followed by one that is very similar in the same category. Very significant losses in credit trading by Genius Traders in 2007 were repeated in 2012; Rogue Traders in 2007; and in late 2011 both sat on the Delta One Desk. Multiple hedge fund managers conducting insider trading in popular company stocks were repeat offenders across multiple years; Madoff's Ponzi scheme was soon followed by Peregrine's; the 2010 Flash Crash was followed by the Knight Capital incident; issues in mortgage underwriting resulted in issues in mortgage foreclosing; and manipulation of credit securities' prices was followed by manipulation of interest rate quotes. Meanwhile, external threats are not going away: hurricanes, tsunamis, volcanic eruptions occur with regularity while cyber security incidents are reported every month.

Table 15‐1 Repeat Operational Risk Incidents

Category	First Incident	Year	Loss (in US billions)	Repeat Incident	Year	Loss (in US billions)
Genius Trader	Credit trading	2007	Undetermined	Credit trading	2012	$6
Rogue Trader	ETFs	2007	$7	ETFs	2011	$2.3