Such was the secrecy surrounding the Addison case in AIB that John Rusnak (above) was not aware a rogue trader in the same group in the same country had been caught months earlier in NY

The case involving a rogue trader who operated unhindered for several months up to late 2001 at AIB's branch in New York, a unit of its capital markets division, may at first sight tell us little of what subsequently unfolded at Ireland's largest bank.

After all, AIB and its Dublin peers teetered on the brink of collapse in recent times after its senior management and directors, some of whom continue to run the bank, authorised lending on a colossal scale to a tiny section of its customers, leaving the bank with the continued need of various supports from the taxpayers.

The case of the 2001 rogue trader, Lori G Addison, was unusual. First it involved a female employee, who lost substantial sums trading collateralised mortgage obligations (CMOs). Her rogue trading also happened at a time when very few people had ever heard of CMOs or the destructive powers of any such collaterised debt obligations, which were subsequently to play an infamous starring role in exporting America's housing and economic woes into Europe.

But for all its interesting aspects, the case of AIB's lesser-known rogue trader would have remained largely hidden but that Addison was detected, stopped, dismissed and her CMO book sold at a substantial loss several months before the detection of John Rusnak at another AIB banking unit in America.

It has been documented that Rusnak, carrying on his unsophisticated currency trades up in Baltimore, made most of his $691m loss in the final months before his detection in early February 2002. Such was the secrecy surrounding the Addison case inside the bank – and for the public and media outside – that Rusnak was not aware that a rogue trader in the same small banking group in the same country had been caught months earlier in New York. There was no media reporting of the Addison case back in Ireland in late 2001.

Significantly within a year of the Rusnak case, AIB sued two of the world's largest banks, Bank of America and Citibank, for $480m. AIB alleges that in its dealings with Rusnak, the US giants had a fair idea that Rusnak was involved in rogue trading.

The AIB lawsuit, which rumbles on in a Manhattan court at pre-trial discovery stage, remains Ireland's largest corporate lawsuit of its type. This case and other matters have raised the concerns of Michael Moynihan, the chair of the Oireachtas Economic Regulatory Affairs Committee. As reported here last week, his committee plans to re-open its inquiries into AIB's so-called legacy issues because, he believes, it throws much light on the subsequent fortunes and misfortunes that almost brought AIB and the economy to its knees.

Moynihan's committee last year also investigated the questionable off-shore share dealings undertaken by Goodbody Stockbrokers, another part of AIB's capital markets division, a year before the Addison case.

Moynihan says he was shocked by what he learned about the way AIB operated its off-shore trading a decade ago. He now wants to know whether a clear sign-posting by the bank of a lesser-known rogue trader in New York in its report and accounts in 2001 would have stopped Rusnak in his tracks at an earlier stage. Moynihan wants to know why the reports and accounts of AIB did not clearly show that a rogue trader operated in New York and why for years the bank made little of the presence of a rogue trader in its capital markets division before a case brought by the Securities and Exchange Commission (SEC) in 2006 revealed much of the detail.

The SEC brought the complaint against Lori G Addison, the then 46-year old ex-trader, in 2006. Ironically, it was the year when matters started to spin out of control for AIB and the other Dublin banks as their directors looked at their lending boom here turning into a bust. Four years later the SEC transcript of the court case still makes a fascinating read.

From at least April 2001 to October 2001, Addison, a trader at AIB, conspired with sales representatives from two brokerage firms to misrepresent to AIB the value of its collateralised mortgage obligation (CMO) portfolio, the SEC charged. At the end of each month, AIB would seek independent valuations of its CMO portfolio. In connection with that process, and before the portfolio's valuations were reported back to AIB, Addison would secretly convey to the sales representatives a valuation she considered desirable for each security reported upon by their firm. In virtually all of these purportedly independent valuations, without disclosing her role in the process, the sales representatives reported to AIB the inflated CMO prices dictated by Addison.

As a result, for several months, the bank's CMO portfolio appeared to be more profitable than it actually was. On the strength of the reported profitability of the portfolio, said the SEC complaint, Addison was allowed increased capital levels to make further securities purchases. The SEC said the false and misleading valuation reports orchestrated by Addison deceived AIB. Ultimately, when the discrepancy between the actual and reported value of the CMO portfolio came to light, AIB liquidated its CMO portfolio at a substantial loss, ceased investing in CMOs, and terminated Addison's employment, said the SEC complaint. The court documents relate a taped phone conversation she had in early October 2001 with an unnamed firm on pricing the bonds in the CMO book.

Addison: Okay, are you ready?

Representative: Yeah, what do you got?

Addison: Have it?

Representative: Yeah, right in front of me.

Addison: All I did is mark them up a point from last month.

Representative: Alright, what do you got?

She was only caught when a colleague questioned the pricing of the bonds in the portfolio when Addison was out sick.

The SEC said that AIB sold the CMO book at a "substantial loss". Yet, AIB was not required to report the existence of a rogue trader in New York in its 2001 reports and accounts. The SEC settled with Addison on the day of the 2006 court case without her admitting or denying the allegations in the SEC's complaint. She was also fined.

In response to questions last week, an AIB spokeswoman said a €7m loss was properly accounted for in the 2001 annual report.

The bank "had acted appropriately in relation to all aspects" of the case "both in its discovery and in the manner in which it was reported and accounted for". AIB also said its management had identified the issue, reported it to the authorities and took all necessary action, including the dismissal of the trader.

But Moynihan, the chair of a senior Oireachtas committee, believes that AIB has outstanding questions to answer in this so-called legacy issue. He wonders whether AIB should have been obliged to clearly tell shareholders in its 2001 report about Addison.

The full details only emerged when the SEC settled with the rogue trader in a Manhattan court room five years later. Moynihan believes the case raises more issues of potential regulatory weaknesses in our banks.