January 2008 Société Générale Trading Loss Incident | My Capital Market Weblog My Capital Market Weblog January 2008 Société Générale Trading Loss Incident The January 2008 Société Générale trading loss incident was an incident in which the bank Société Générale lost approximately €4.9 billion closing out positions over three days of trading beginning January 21, 2008, a period in which the market was experiencing a large drop in equity indices. The bank states these positions were fraudulent transactions created by Jérôme Kerviel, trader with the company. The French police stated they lack evidence to charge him with fraud and charged him with abuse of confidence and illegal access to computers. But Kerviel states his actions were known to his superiors and that the losses were caused by panic-selling by the bank. Jerome Kerviel, 31, is, by universal consensus, a virtual nonentity.

Described as a reserved young man, the son of a hairdresser and a metalworking teacher from an obscure town in Brittany, SocGen’s backroom trader lived a humdrum existence, went to a middling college for a degree in risk management, and by all accounts was completely average. Kerviel joined the middle offices in the bank Société Générale in the summer of 2000, working in its compliance department. In 2005 he was promoted to the bank’s Delta One products team in Paris where he was a junior trader. Société Générale’s Delta One business includes program trading, exchange-traded funds (ETFs), swaps, index and quantitative trading. Unlike Nick Leeson of the Nineties, he wasn’t a pompous high-flier, he made a annual salary of 1,00,000 euros, a paltry in the stratospheric circles of high finance. He even once ran for his town council elections, though he didn’t win.

Yet, he’s now achieved cult status as history’s biggest rogue trader, the man who single-handedly lost Societe Generale $7.2 billion (euro 4.9 billion), spooked the US Federal Reserve into the biggest rate cut since 1984, possibly and probably crashed the global markets, and left French president Nicholas Sarkozy with bigger problems along with his personal marital problems. In just three days, Jerome Kerviel has lost all his 11 friends on Facebook, but acquired online fan clubs, already topping 1,000 members. He’s a hero to some, a rogue to others, but mostly a puzzle to many serious analysts. In an uncertain world, a rogue trader adds a new dimension to the continuing chaos in global markets. The bank states that Kerviel was assigned to arbitrage discrepancies between equity derivatives and cash equity prices, and “began creating the fictitious trades in late 2006 and early 2007, but that these transactions were relatively small. The fake trading increased in frequency, and in size”.

The Executive Chairman of Société Générale, Daniel Bouton described the pattern as like “a mutating virus” in which hundreds of thousands of trades were hidden behind offsetting faked hedge trades. Officials say Kerviel was careful to close the trades in just two or three days, just before the trades’ timed controls would trigger notice from the bank’s internal control system, and Kerviel would then shift those older positions to newly initiated trades. City experts have expressed skepticism of the bank’s account, saying that a pattern of closing out trades within the three day cycle alleged could not be accomplished given the immense sums involved. Kerviel has simply been suspended, but is in the process of being fired by the bank. As French police picked up the trader over the weekend for questioning, the big question being asked is whether a single, backroom boy, could be solely responsible for the mess, or is he just being blamed for a larger internal failure within France’s second-largest bank? To what extent did SocGen’s frantic and secret three-day selling spree trigger the crash in global markets, including the ongoing mayhem in Asian markets?

And if this could happen, how much more dirty linen is hidden out there, in the murky depths of global banking that’s yet to get a fix on subprime losses? US and European analysts, though not quite ready to blame it all on Mr Kerviel, seem to veer to the view that SocGen, which discovered the fraud before the weekend, did, in fact, help accelerate the crash as it desperately unwound Kerviel’s positions. One estimate puts the figure at around euro 30-50 billion, another likened it to equivalent to selling euro 40 billion of shares in one go which couldn’t fail to move the market on Monday, and led to the Fed taking drastic measures on Tuesday. To put things in perspective, however, global banking has had to write off around $130 billion so far on its subprime crisis; Mr Kerviel’s $7.2 billion fades before that. The Asian markets, starting with Australia, also began melting down in a time zone and time before European markets opened on Monday.

A contrarian view is that as news of the unintentional fraud seeped out late in the week, traders heaved a sigh of relief at having the uncertainty explained, and went bottom-fishing to help Asian markets recover towards the close of the week. So what exactly is Mr Kerviel supposed to have done? He had a junior job as a hedger, to reduce the bank’s risk by taking out positions opposite to the ones being run by traders. And apparently, despite being dubbed the ‘five-billion-dollar man’, he made no personal profits from the mess he made off. Nobody yet knows why he did it, if he did. Although SocGen’s top brass described him as a brilliant and machiavellian rogue trader, who used his backroom and risk management expertise to bypass the bank’s sophisticated control mechanisms, an assertion not many are turning heads, not even Mr Sarkozy, who called it a “large-scale internal fraud”. On January 21, 2008, European stock markets suffered heavy losses of about 6%.

The sharp fall, which was followed by an emergency cut in the federal funds rate by the United States Federal Reserve on the following Tuesday (US markets were closed on the Monday for Martin Luther King Jr Day), came as Société Générale tried to close out positions built up by Kerviel. This has led to speculation that stock market turbulence caused the Federal Reserve Board to cut the rate. A Federal Reserve spokesperson denied the central bank knew of SocGen’s situation when it made its decision. It is estimated that over the period the total trading in futures and the cash market for the Euro Stoxx 50 was €544 billion. This would make the unwinding of Kerviel’s position account for five per cent or less of overall activity. Société Générale’s investment banking chief, Jean-Pierre Mustier, acknowledged that the three days of forced selling played a role in the market’s overall decline, but characterized that impact as “minimal”.

Share this: Ex-Trader Jérôme Kerviel Remains a Mystery as His Trial Ends - The New York Times The New York Times Global Business |A Société Générale Trader Remains a Mystery as His Criminal Trial Ends Search Continue reading the main story PARIS — The trial of Jérôme Kerviel , the man accused of causing billions in losses at the French bank Société Générale , ended Friday with judges and prosecutors conceding that a two-year investigation and three weeks of court hearings had left them no wiser about what had motivated the former trader to make his enormous, unauthorized bets. A three-judge panel will now spend the coming months poring over the testimony of more than 40 witnesses in an attempt to determine whether blame for the scandal should rest solely on the shoulders of one man. The presiding judge in the case, Dominique Pauthe, confessed that despite Mr. Kerviel’s exhaustive explanations of how he had entered and then concealed derivatives trades involving tens of billions of euros under the noses of his superiors, the man himself remained an enigma. “Who are you really, Mr. Kerviel?” Judge Pauthe asked Tuesday, the final day of witness testimony. The defendant shrugged.

“I’m someone who tried to do his job the best he could, in the interests of the bank,” he said. “My objective was to help it make money.” Advertisement Continue reading the main story On Thursday, the Paris prosecutor, Jean-Michel Aldebert, requested a jail sentence of at least four years for Mr. Kerviel, whom he called “a manipulator, a trickster and a liar.” The maximum possible penalty for the charges faced by the former trader — breach of trust, forgery and unauthorized use of the bank’s computer systems — is five years in prison and a fine of 375,000 euros ($464,000). The unwinding of an estimated 50 billion euros in open positions on Mr. Kerviel’s trading book in late January 2008 cost Société Générale 4.9 billion euros, the equivalent of about $7 billion at the time. Mr. Kerviel, 33, acknowledged to the court that he had falsified documents and entered fake trades to hide his bets, but he maintained that his bosses had deliberately turned a blind eye and tacitly encouraged his activities as long as they were earning profits.

“It wasn’t me who invented these techniques — others did it, too,” Mr. Kerviel said, though he never named names. “These practices were known and recognized by management.” Inside the oak-paneled courtroom — formerly an auction hall — of the 19th-century Palace of Justice, the atmosphere at times was more like a university lecture than a criminal hearing, with bank officials, regulators and risk management experts delivering jargon-filled primers on financial instruments like “turbo” warrants, forwards and futures that were the currency of Mr. Kerviel’s trading desk, Delta One. Lawyers for both sides devoted hours to examining the distribution lists of company e-mail messages and interpreting scores of charts and tables depicting Mr. Kerviel’s trades and those of the eight others on his team. Despite the technical nature of much of the testimony, public interest was high. The wooden benches of the media gallery were filled on most days, with a handful of journalists transmitting live snippets of the proceedings to the Internet via Twitter. More than a dozen of Mr. Kerviel’s former colleagues appeared as witnesses. Some shed tears as they described the repercussions of his actions on their careers and personal lives. But throughout the proceedings, Mr.

Kerviel himself betrayed little, if any, emotion. His arms crossed and his gaze often fixed on the floor, he sat impassively as his former bosses portrayed him as an aberrant cheat who had taken advantage of weaknesses in the bank’s risk-control systems. Photo Jérôme Kerviel arriving at court on Friday. A panel of judges will decide whether blame should rest on his shoulders alone. Credit Antoine Antoniol/Bloomberg News Daniel Bouton, 60, who resigned as the bank’s chief executive after the scandal and retired as its chairman last year, called Mr. Kerviel an “evil genius” whose actions had been a “catastrophe” that nearly destroyed the 145-year-old bank. Advertisement Continue reading the main story Jean-Pierre Mustier, 49, the former chief executive of the investment banking division that employed Mr. Kerviel, said he was dumbfounded by the trader’s sang-froid: “I can’t understand how his nerves could have handled the pressure of that much risk,” said Mr. Mustier, who himself spent six years as a trader. Mr.

Mustier, who left the bank in 2009 amid an unrelated insider trading investigation, argued that rather than having fostered a culture of excessive risk-taking, Société Générale had failed by creating an environment where there was “too much trust.” “I take responsibility for that,” he said. Please verify you're not a robot by clicking the box. Invalid email address. Please re-enter. You must select a newsletter to subscribe to. Sign Up Privacy Policy The testimony of Mr. Kerviel’s former direct superior, Eric Cordelle, was in many ways illustrative of the simple and yet intractable question underpinning the trial, which was not so much who knew about Mr. Kerviel’s activities, but who could, and should, have known. Where should the line between negligence and tacit endorsement be drawn? Mr. Cordelle, 38, was appointed head of the Delta One desk in April 2007, and is one of two managers who were fired for incompetence immediately after the scandal. An engineer with no trading experience, Mr. Cordelle said he had never suspected that Mr. Kerviel was operating outside his mandate.

He added that because his desk had been understaffed, he had had no time to scrutinize traders one by one. “If you’re not looking for anything,” he said, “you don’t find anything.” Moussa Bakir, a futures dealer who made more than a million euros in commissions in 2007 on several large trades he brokered for Mr. Kerviel, disclosed the lengths to which the former trader had gone to hide his activity. Mr. Bakir, 34, testified that when he asked who had been behind the trades, Mr. Kerviel told him they had been on behalf of a client called “Mat,” a 35-year-old, rugby-loving hedge fund manager in London. Mr. Kerviel spoke often of Mat, describing him as a demanding customer whose aim was to make a billion euros in profit, Mr. Bakir said. Mr. Kerviel conceded to the court that Mat did not exist and that he had invented him to discourage Mr. Bakir, who was also a friend, from investigating further. “I believed Jérôme Kerviel without any doubt,” Mr. Bakir said.

“From beginning to end.” Early on in the investigation, the police had considered Mr. Bakir a possible accomplice who might have been aware of at least some of Mr. Kerviel’s activities. Société Générale never filed charges against the broker. Few legal experts dared to speculate about the verdict after a trial in which all parties have pointed fingers and refused to take responsibility. But most expect Mr. Kerviel to face some form of punishment, particularly as he was tried by tribunal rather than by a jury. Advertisement Continue reading the main story “Kerviel would have had a far better chance for exoneration if his fate were in the hands of a jury instead of a judge,” said Bradley D. Simon, a white-collar criminal defense lawyer at Simon & Partners in New York who specializes in securities and bank fraud. “The judge, as a member of the French political establishment, is likely to come down harshly on Kerviel and to accept SocGen’s view of the situation.” Frédérik-Karel Canoy, a lawyer representing shareholders seeking civil damages from the bank in the case, dismissed the bank’s claims that its ignorance of Mr. Kerviel’s activities absolved it of responsibility for the losses.

“Société Générale was responsible for the acts of its employee,” Mr. Canoy said. “It had an obligation to monitor him.” Judge Pauthe’s verdict is expected on Oct. 5. Whatever he decides, it is unclear whether his deliberations will yield a new understanding of the man behind the biggest rogue-trading loss in history. “So we know everything there is about you, then?” the judge asked Mr. Kerviel. “There is no ‘mystère Kerviel’?” “Not from my point of view,” Mr. Kerviel replied, his voice just above a whisper. A version of this article appears in print on June 26, 2010, on Page B3 of the New York edition with the headline: A Société Générale Trader Remains a Mystery as His Criminal Trial Ends. Order Reprints | Today's Paper | Subscribe Former French trader ordered to pay $6.7 billion for fraud | Toronto Star Business Former French trader ordered to pay $6.7 billion for fraud Jerome Kerviel is convicted on all counts in one of history’s biggest trading frauds, gets three years in jail.

French rogue trader Jerome Kerviel, right, arrives at court in Paris on Oct. 5, 2010. (JOEL SAGET / AFP) By Greg KellerAssociated Press Tues., Oct. 5, 2010 PARIS—Former Société Générale SA trader Jerome Kerviel was convicted on all counts Tuesday in one of history’s biggest trading frauds, sentenced to three years in jail and ordered to pay the bank a mind-numbing 4.9 billion euros ($6.7 billion U.S.) in damages. The ruling marked a huge victory for Société Générale, one of France’s most blue-blooded banks, which has worked to clean up its image and put in place tougher risk controls since the scandal broke in 2008. The 33-year-old former futures index trader stood expressionless as the court convicted him of all charges and pronounced a five-year sentence with two years suspended. Kerviel was found guilty on charges of forgery, breach of trust and unauthorized computer use for covering up bets worth nearly 50 billion euros between late 2007 and early 2008.

In a stunning blow, the court also ordered Kerviel to pay the bank back the 4.9 billion euros that it lost unwinding his complex positions in January 2008 — a punishment he would almost certainly be unable to pay. That sum marked the largest-ever alleged fraud by a single trader. There were audible gasps and surprised looks when presiding judge Dominique Pauthe read out the damages to a packed courtroom of 150 reporters, court officials and members of the public. Outside the courtroom, defence lawyer Olivier Metzner called the financial penalty “unbelievable.” “I have the feeling Jerome Kerviel is paying for an entire system,” said Metzner, noting that his client hadn’t benefited financially from the fraud. Metzner said Kerviel would appeal and will remain free pending that appeal. The damages are also suspended pending any appeal, so Kerviel wouldn’t be ordered to pay right away. French media calculated that based on his current salary of $3,150 (U.S.) a month as a computer consultant, it would take Kerviel 177,536 years to pay off the damages.

While trading for the bank, Kerviel took home a salary and bonus of less than 100,000 euros, or about $155,700 — a relatively modest sum in the financial world. Société Générale spokeswoman Caroline Guillaumin called the verdict “an important ruling that acknowledges the moral and financial harm done to the bank and its staff.” “The bank can now turn the page, pursue its strategy and continue to rebound,” Guillaumin said in an emailed statement. Kerviel sat with his arms folded and his legs crossed during the first 45 minutes of the hour-long hearing, sitting alone in the front row of the courtroom with seven empty wooden chairs to his left. He barely blinked as each guilty verdict was read out. He stood for sentencing in a dark suit and tie, frowning and silent. “He is disgusted,” Metzner said of Kerviel’s feeling about the ruling, adding that the court had judged the bank “was responsible for nothing, not responsible for the creature that it had created.” “I hope you all will donate a euro to Jerome Kerviel,” the lawyer told TV cameras and reporters.

Kerviel, a soft-spoken and debonair man from western Brittany, has garnered considerable public appeal in France for his image of being a scapegoat for powerful corporate interests. Kerviel maintained that the bank and his bosses tolerated his massive risk-taking as long as it made money, which he did at first, racking up 1.4 billion euros in profits for Société Générale in 2007, the judge noted. During the proceedings, both sides admitted to mistakes but Kerviel insisted his bank superiors knew what he was doing. Société Générale’s former chairman acknowledged there were problems in monitoring the trader’s work. The bank says Kerviel made bets of up to 50 billion euros — more than the bank’s total market value — on futures contracts on three European equity indices, though his net position appeared unremarkable because he balanced his real trades with fictitious transactions. In the ruling, the court said Kerviel acted without the bank’s knowledge and said it was “obvious” none of his bosses would have allowed him to bet sums exceeding the bank’s capital.

“Through his deliberate actions, he endangered the solvency of a bank that employed 140,000 people including himself, and whose future was seriously put at risk,” the ruling said. The court also praised the bank’s handling of the crisis, saying Kerviel’s “actions without a doubt threatened the public order of the world economy” though their “impact was contained in the end by the bank’s reactivity.” Still, an internal report by the bank found managers failed to follow up on 74 different alarms about Kerviel’s activities. The bank’s CEO Daniel Bouton and its head of investment banking Jean-Pierre Mustier stepped down in the wake of the scandal, with Bouton saying attacks on him risked hurting the bank. BBC NEWS | Business | Rogue trader to cost SocGen $7bn Rogue trader to cost SocGen $7bn Jerome Kerviel, the reported rogue trader French bank Societe Generale says it has uncovered "massive" fraud by a Paris-based trader which resulted in a loss of 4.9bn euros ($7.1bn; ï¿½3.7bn).

The bank said the fraud was based on simple transactions, but concealed by "sophisticated and varied techniques". While Societe Generale has yet to name the trader, media reports say he is 31-year-old Frenchman Jerome Kerviel. The losses are four times greater than those made by Nick Leeson, the rogue trader who brought down Barings Bank. Leeson was sentenced to six-and-a-half years in jail. Rogue trading is probably a daily occurrence within the financial markets Nick Leeson Nick Leeson interview 'A daily occurrence' Speaking to the BBC, Leeson said he was not shocked that the latest fraud had taken place - only its scale. "Rogue trading is probably a daily occurrence within the financial markets," he said. "What shocked me was the size. I never for one moment believed it would get to this degree of magnitude, this degree of loss." Societe Generale's shares, which were suspended in the morning, ended the day down 4.1%. 'Alone' According to reports, Mr Kerviel worked at the bank's Delta One products team in Paris.

The sheer scale of the loss is overpowering Robert Peston, Although Societe Generale has yet to confirm his name, it did say that the trader was a Frenchman in his 30s who joined the bank in 2000 and earned a salary and bonus of less than 100,000 euros. He was responsible for betting on the markets' future performance, bank executives said. "I'm convinced he acted alone," said Jean-Pierre Mustier, chief executive of the corporate and investment banking division, who interviewed the trader after the fraud was uncovered. Societe Generale said the trader had taken what it called "massive fraudulent directional positions in 2007 and 2008 beyond his limited authority". Executives said the trader may not have sought personal gain from the fraudulent deals. The fraud is an extraordinary echo of the rogue trader, Nick Leeson, who caused the collapse of Barings Bank in 1995, says BBC business correspondent Nils Blythe. But the losses uncovered by Barings bosses totalled just ï¿½860m - about a quarter of the amount lost by Societe Generale.

'Secret trade' The bank, one of France's largest, will need to seek 5.5bn euros in new capital to offset the losses. SOCIETE GENERALE IN FIGURES Societe Generale share price But it said it would still make a profit of 600m to 800m euros for 2007, despite the blow to its balance sheet. The bank said the trader responsible for the fraud had "in-depth knowledge of the control procedures resulting from this former employment in the middle-office". "The transactions which involved the fraud were simple - taking a position on shares rising - but hidden using extremely sophisticated and varied techniques," chief executive Daniel Bouton said in a letter to the bank's customers. The bank said that the trader had confessed to the fraud and was being dismissed. His managers were to leave the bank as well. "I am sorry but I have a hard time buying the fact that a trader was able to set up a 'secret trade' of 4.9 billion without anybody finding out," said Ion-Marc Valhi at Amas Bank. Frederic Hamm, fund manager at Agilis Gestion, believes that the fraud "impacts the reputation of the bank".

Mr Bouton offered his resignation but it was rejected by the board, the bank said. Richard Fuld, the chairman of Lehman Brothers, told BBC News in Davos that "nothing stuns me, nothing really surprises me these days." 'Unprecedented event' The bank's losses have seriously dented its profits for 2007. SOME MAJOR BANK FRAUDS 2008: Societe Generale, alleged fraud by a trader, 4.9bn euros loss 2002: former currency trader accused of hiding $691m in losses at Allfirst bank of Baltimore 1995: UK's Barings Bank collapsed after a trader Nick Leeson lost ï¿½860m ($1.28bn at the time) on futures trades The company will announce its full year results on February 21, and it said that it expects its 2007 net income to be in the range of 600m-800m euros. Shares in Societe Generale have fallen by nearly 50% in the past six months.

Societe Generale is also going to raise 5.5bn euros through a capital increase "to strengthen its capital base". Meanwhile, another French bank, BNP Paribas, said that "it has not revealed any loss of item that would justify any particular warning to the market". Gilles Glicenstein, BNP Paribas Investment Partners chief executive, suggested that "there is still some information missing to understand what happened" at Societe Generale. "Because the scale of the fraud is so large, there must be a complex explanation... For Societe Generale, it's an unprecedented event," he added. Mr Glicenstein also said it was not good news for banks in general, as "it can create doubt". "In other periods, this type of news was hidden, but today, there is a tendency to reveal everything and maybe it's by revealing everything that confidence can return," he said. French Prime Minister Francois Fillon said that Societe Generale "has taken serious measures to cope with the situation". "I note too that the Bank of France has indicated that there is no reason to have any worries about the health of this bank and I am happy with that," he added.

Rogue Trader Costs Bank Billions Rogue Trader Costs Bank Billions comments, called-out Not just anyone can lose $7 billion of his company’s money. It takes talent, unbelievably bad luck and, above all, an intimate understanding of a firm’s risk management and control policies to cover up the tracks. Société Générale, the French banking giant, said Thursday it has just such a trader, who lost big betting on the direction of European stock indexes and tried to cover it up with fake positions. The employee, identified in European media reports as Jerome Kerviel, covered up his mess for a while using his deep knowledge of the bank’s internal control systems. But something triggered management suspicions on Jan. 18, and the fraud was uncovered over the weekend. Société Générale, already on the ropes for its exposure to U.S. subprime mortgage securities, had to quickly unwind the position, estimated in the tens of billions of euros, and selling had to be done amid a global market free-fall on Monday. In fact, some argue that the 6% decline in European stock markets Monday was exacerbated, if not sparked, by Société Générale’s massive unwind.

It just goes to show that even the strongest risk-management procedures and the most diligent of compliance departments can’t overcome a determined employee, particularly one who is well versed in the company’s control policies. In a letter to clients Thursday, Société Générale Chairman Daniel Bouton said the bank is raising $8 billion in new capital to restore its depleted coffers. Société Générale is also writing down almost $3 billion worth of exposure to credit derivatives and counter-party arrangements with U.S. bond insurers, which are also under severe pressure. Bouton said he offered to resign over the fraud, but the bank’s board wouldn’t accept the offer. “All possible measures were taken as quickly as possible to limit its impact,” Bouton said of the trading loss, which is said to be isolated to the one trader. “Control procedures have been revised and reinforced to avoid any reoccurrence of further similar risk.” It’s been said before, though.

Société Générale’s loss is the biggest ever by an individual trader, well more than the comparatively measly $1.4 billion Nick Leeson lost at Barings Bank back in 1995, though at least Société Générale, unlike Barings, is still solvent. It is also twice the sum lost by alleged genius investor John Meriwether at Long-Term Capital Management, the hedge fund that collapsed in 1998 and required a bailout organized by the Federal Reserve Bank of New York. In both cases, there was much teeth gnashing in the industry about strengthening controls and trading risk management. Société Générale said the trader was responsible for plain vanilla futures hedging on European equity market indexes. He was short the indexes last year, but for unknown reasons changed his bet to be long this year, meaning he saw the indexes rising. “Aided by his in-depth knowledge of the control procedures resulting from his former employment in the middle office, he managed to conceal these positions through a scheme of elaborate fictitious transactions,” the bank said. It isn’t entirely clear just how he pulled off the fake positions without detection. Five managers above him were also fired.

The trader, who confessed last weekend, helped the bank unwind the trades. Société Générale shares fell by half over the last year, and there was speculation Thursday that this latest crisis would tip it into an acquirer’s hands. Profits for 2007 were nearly wiped out by the fraud and are estimated to be between $876 million and $1.1 billion after accounting for the loss and the hit from U.S. mortgage exposure. “Everything happened this weekend. We had zero suspicions before Friday,” Bouton said Thursday. Good thing it wasn’t a bank holiday weekend in France. Jérôme Kerviel – Crook or Scapegoat? Politicians Recall Dreyfus Affair As Rogue Trader is Jailed | FrenchNewsOnline Jérôme Kerviel – Crook or Scapegoat? Politicians Recall Dreyfus Affair As Rogue Trader is Jailed Added by admin on May 19, 2014.

Tags: Jean-Luc Mélenchon , Jérôme Kerviel , Marine Le Pen , Société Générale Marine Le Pen and Jean-Luc Mélenchon heading diametrically opposite poles of French politics have found rare agreement in opposing a jail sentence imposed on rogue bank trader Jérôme Kerviel, detained and whisked off to start a three-year prison term on Sunday May 18. Jérôme Kerviel hiked back from Rome after meeting the Pope (Credit Facebook) 18 MAY 2015 IMPORTANT UPDATE BELOW ALL THE TRUTH MAY NOT HAVE BEEN REVEALED The young Breton who hails from a modest background, had spent the past two months walking home from Rome where he had gone to meet the Pope, as part of a protest against “the tyranny of the markets” which also helped raise the profile of his 6-year effort to overturn a conviction his lawyers claim is unsafe. According to the French news agency AFP: “Kerviel was tramping through Tuscany in March when France’s top Appeals Court upheld his 2010 conviction for breach of trust, forgery and entering false data in relation to unauthorised deals that nearly brought his former employer down.

The ruling left Kerviel, who served 41 days in pre-trial detention in 2008, liable to be imprisoned at any time within five years of the verdict. Kerviel’s defence lawyers asked the state prosecution to suspend the application of his sentence. ‘There is no urgency in jailing him, other than to silence him,’ said the statement.” Kerviel, 37, insists his bosses at France’s second-biggest bank, Société Générale, were aware of his trading activities and practices but turned a blind eye while he was making a profit – claims a bank with a reputation for being litigious has vehemently denied. Kerviel insists it was inconceivable that line managers and senior Société Générale bank executives were in the dark about his highly risky trading activities in the days before the GFC – Global Financial Collapse of 2007 . He, his legal team and numerous supporters insist he is a scapegoat, a viewpoint now endorsed by right-of-right Front National leader Marine Le Pen and her counterpart, the left-of-left Front de Gauche leader Jean-Luc Mélenchon.

Interviewed on Sunday by BFMTV Jean-Luc Mélenchon drew a parallel with the Dreyfus affair : “We support him because we think he is innocent, and we and others on the Left are like that ever since the Dreyfus affair. Dreyfus was not one of ours but we supported him nevertheless. Kerviel is innocent, so we support him too (…) The bank claims that this man caused a 5 billion euro loss, yet it has always refused any independent audit by experts to establish the level of the loss. We think he was turned into the guilty party as part of (bank) manoeuvring(…) for us to defend this trader in his dispute with his bank is as unexpected as was our defence of a monarchist captain (Dreyfus) at the beginning of the last century against the closed ranks of the military,” he added. Marine Le Pen speaking on the same programme agreed with Mélenchon: “They (prosecutors) have been very proactive (in prosecuting) this man but have not challenged the speculation indulged in by the banking system which allows banks to gamble at the casino with the savings of their depositors,” she said.

She also turned her fire on French Economy Minister Michel Sapin who had earlier called Jérôme Kerviel a “crook”. “One thing of which I am sure it is Sapin who is guilty of a political scam, for it was his party that pledged to separate high street banking from casino banking when François Hollande was on the campaign trail (for the presidentials elections in 2012) a pledge the government has not kept. So each to his own scam then”. On June 20 2013 Jean-Luc Mélenchon, a former journalist, wrote an extensive and exhaustive blog in support of Kerviel, whom he insisted was “innocent”. His closely argued piece made very serious charges of cover-ups, political and legal connivance and financial skulduggery on a grand scale resulting from the vast sub-prime losses attributed to Société Générale in the aftermath of the US-banker-led global meltdown and concern in Paris to shore up a bank regarded as a pivotal player in the global banking system. ( See details of these losses here: “Société Générale said Thursday that the rogue trading scandal uncovered last month, combined with significant write-offs of U.S.

sub-prime mortgage investments, had pushed it to a record quarterly loss. The French bank declared a €3.35 billion, or $4.95 billion, net loss for the fourth quarter of 2007, compared with a gain of €1.18 billion a year earlier. Société Générale – which has blamed the bulk of its troubles on an “exceptional fraud” by a 31-year-old junior trader, Jérôme Kerviel – reported an 82 percent plunge in net profit for the year, to €947 million. The bank also said it had booked write-downs and provisions worth €2.6 billion linked to its holdings of collateralized debt obligations and mortgage-backed securities.

The results followed the publication late Wednesday of an independent report that found that Société Générale had failed to follow up on at least 75 alerts raised by its risk control officers, compliance officers and accountants over the course of two years.”) As summarised by Politis.fr of the same date Mélenchon proclaimed Kerviel’s innocence: “In a lengthy blog Mélenchon defends Jérôme Kerviel, convicted of causing Société Générale a 4.9 billion euros loss an amount (which the court also) ordered him to repay. Mélenchon puts forward a number of ‘abnormalities’ he considers the prosecution investigation to be guilty of – no independent audit of the amount of losses reported by Société Générale – which he accuses the bank of having ‘loaded’ onto the junior trader so as to hide losses made in the (2007) sub-prime crisis and so as to obtain 1.7 billion euros compensation from the state.

This compensation (writes Mélenchon) was paid promptly without verification of any kind, by Christine Lagarde, (then) Minister of Economy.” As far as French-News-On-Line has been able to establish Mélenchon has not been pursued by Société Générale through the courts for any of the details in his published account which is now almost a year old. Here then is a short excerpt from Mélenchon’s blog setting out why he regards the trader as innocent: “But the story is just too simple. When the Kerviel affair began in January 2008 it was at the time of the sub-prime crisis. Société Générale was one of the hardest hit French banks: In 2007 alone, it was forced to report a loss of 2 billion euros related to sub-prime mortgages. The bank was in danger of suffering considerable damage if it were to lose investor and depositor confidence. It might collapse. This bank was however deemed “systemic” so cannot and must not fail as failure would affect the entire global banking system. So how to absorb a 2 billion euro loss fast? Not easy. But they found a way.

“The bank announces its ‘sub-prime’ associated loss on the same day as it blames Kerviel for a 4.9 billion euro trading loss. So Kerviel becomes a rogue who cheated the bank, and the bank can now ask the State to offset a portion of its loss. Indeed there is a mechanism in France that allows a bank to recover some of its losses (33%) if they result from a fraudulent action. The bank opted to record the expected loss forthwith. No problem. In 2008, the Ministry of Economy and Finance refunded 1.7 billion euros to Société Générale because the bank could show that as expected, losses for 2007 were not attributable to it but due to fraud. Yes you say but the bank must still absorb a loss of 4.9 billion euros which it holds Kerviel alone responsible for! Of course. And herein lies the final trick. Kerviel is ordered (by the court) to repay 4.9 billion euros to the bank!

So the bank can therefore include this amount in its losses… a pure accounting play allowing it to record a loss and offset it without further ado.” Jérôme Kerviel on his march from Rome to Paris (Credit Facebook) Before turning himself in to the French police on the Franco-Italian border on Sunday the former trader told AFP he wanted: “to detail to (President) Hollande ‘the serious failings’ that led to his conviction, following the loss of 4.9 billion euros through wildly risky trades and ask Hollande to grant immunity to potential witnesses who could testify in his favour.” Contacted by AFP, Hollande’s office said no meeting was on the agenda and stressed that the president would “respect the decisions taken by French courts”. The appeal to Socialist President Francois Hollande was designed to cause maximum embarrassment to the man who as candidate in the presidential elections two years ago promised root and branch reform of the banking system responsible for the current economic and monetary disaster in Europe and who once admitted he doesn’t like rich people. The meagre outcome of the former pledge can be read here . Here is the official website supporting Kerviel’s battle and here is the Facebook page of his trek from Rome.

Story: Ken Pottinger 17 MAY 2015 | BY MARTINE ORANGE In January 2008, French bank Société Générale announced it had lost 4.9 billion euros through the reckless actions of one of its traders, Jérôme Kerviel, claiming it had been unaware of his actions. Kerviel, who maintained from the start that his hierarchy knew what he was doing, received a jail sentence for forgery, fraud and hacking, and was ordered to pay the bank, in damages, the huge sum it lost. But last month, Mediapart can reveal, the former head of the French police’s financial crime squad, who led its investigation of the events and who was once convinced of the bank’s claims that Kerviel acted on his own, has given a statement to a French judge in which she details why she later became convinced, during her second investigation into the affair in 2012, the trader’s bosses knew of his actions.

Commander Nathalie Le Roy said she now feels she had been “used” by the bank in the 2008 investigation, how it later held back key evidence she requested, of witness accounts that Kerviel’s superiors were already made aware in 2007 of his extravagant trades, of allegations that Société Générale staff were made to sign gagging agreements and revealed that its claimed losses have never been independently verified. Martine Orange reports on a dramatic turnaround in the affair which appears bound to reopen the case. Read more at the Mediapart site Related articles Click here to view the full article on WSJ.com TOPICS: General Electric, performance review SUMMARY: One of the biggest engineering projects under way at General Electric Co. these days isn't a turbine or locomotive. It is reinventing the way the company's employees are assessed, reviewed and even paid. For decades, an ideal GE worker was one adept at squeezing out product defects and almost allergic to admitting uncertainty. Now, as the 124-year-old company refocuses itself on industrial businesses, executives say top performers are those willing to take risks, test new ideas with customers and even make mistakes.

Leaders say GE's multiyear effort to remake itself into a leaner, innovation-driven company requires a nimble workforce that can develop products faster and more cheaply. The shift is significant for GE, whose corporate ethos had long been embodied by Six Sigma, a manufacturing system designed to eliminate error, enshrining certainty and consistency. "It's not realistic to expect perfection anymore," says Janice Semper, a GE human-resources executive who has been behind the management overhaul at the 315,000-employee company. Later this month, executives will decide whether to dispense with the practice of rating employees in five categories-from "role model" to "unsatisfactory"-as part of their annual review. The company also is considering doing away with strictly scheduled annual raises, instead doling out pay raises and incentives at different times throughout the year, and giving managers other tools to reward and motivate employees, such as time off. Ms. Semper says GE expects to begin testing different pay strategies later this year. CLASSROOM APPLICATION: General Electric has one of the most complex and detailed employment evaluation systems of any major corporation. It rates employees in five categories from role model to unsatisfactory.

In fact, the evaluation process can take up to six months with the input of peers and managers. Many companies are now thinking that these complex evaluation systems may not be fair and do not serve to motivate employees. QUESTIONS: 1. (Introductory) Should employees undergo highly complex evaluation processes with no guarantee that they are fairly and accurately evaluated? 2. (Advanced) If General Electric-like some companies-got rid of its evaluation system, would workforce morale increase or decrease? 3. (Advanced) What are the ethical considerations in the type of evaluation used for employees?

Reviewed By: OC Ferrell, Belmont University Click here to view the full article on WSJ.com TOPICS: Sociï¿½tï¿½ Gï¿½nï¿½rale, Business Ethics, Firing, trading SUMMARY: A French labor court Tuesday awarded Jï¿½rï¿½me Kerviel, the Sociï¿½tï¿½ Gï¿½nï¿½rale SA rogue trader convicted in 2010 of bringing the bank to the brink of collapse, a total of ï¿½450,000 ($511,000) because he was fired without "real or serious cause." Sociï¿½tï¿½ Gï¿½nï¿½rale "could not pretend it hadn't long been aware of the unauthorized trades conducted by Mr. Kerviel," judges wrote in their ruling. The bank therefore can't argue that Mr. Kerviel was at fault when it "previously tolerated similar practices," they added. Judges said Mr.

Kerviel-who the French bank said made wayward market bets that cost it ï¿½4.9 billion in 2008-should receive ï¿½300,000 from Sociï¿½tï¿½ Gï¿½nï¿½rale as part of his bonus for 2007 and about ï¿½150,000 for unfair dismissal and damages. Sociï¿½tï¿½ Gï¿½nï¿½rale said the labor court's decision was "incomprehensible" and inconsistent with a decision from France's Supreme Court, the Cour de Cassation. "It is counter to the facts that have been judged. We will appeal against this decision," the French bank said. The labor court's ruling marks a stunning twist in the long legal efforts by Mr. Kerviel to overturn his conviction and seek damages, and again puts a spotlight on one of the world's biggest-ever trading scandals, which tarnished Sociï¿½tï¿½ Gï¿½nï¿½rale's image. It also puts renewed attention on France's labor tribunals.

France's Socialist government has repeatedly tried to curb the severance awarded by the courts in an effort to decrease financial uncertainty for employers making layoffs. But the government dropped the latest proposal to cap payouts after labor unions protested the plans in March. Tuesday's ruling came in response to a lawsuit brought by Mr. Kerviel against Sociï¿½tï¿½ Gï¿½nï¿½rale. Mr. Kerviel was put under investigation in January 2008 after Sociï¿½tï¿½ Gï¿½nï¿½rale disclosed the magnitude of the loss by unwinding a series of bets placed by him. During an 18-month probe by magistrates, Mr. Kerviel said he engaged in and covered up many unauthorized trades. Managers were aware of his activities and turned a blind eye as long as he made money for the bank, he claimed. Sociï¿½tï¿½ Gï¿½nï¿½rale has always rejected this claim. CLASSROOM APPLICATION: Sociï¿½tï¿½ Gï¿½nï¿½rale was ordered to pay a trader $511,000 because he was possibly fired unfairly.

A judge ruled that the bank was aware of the trades that ended up losing 4.9 billion euros. Even though Mr. Kerviel has already served a jail term, the court is now finding that he was operating and making trades that were totally transparent to his supervisors. It appears he became the fall guy for the bad trades. QUESTIONS: 1. (Introductory) If Mr. Kerviel's superiors knew what he was doing, should he have been fined and sent to prison for his bad trades? 2. (Advanced) Is it possible in most organizations for a trader to lose 4.9 billion euros without knowledge and approval by others in the bank? 3. (Advanced) What type of restitution should Mr. Kerviel receive for having to spend time in prison for a crime that the courts viewed was not fairly assessed? Reviewed By: OC Ferrell, Belmont University by: Christina Rexrode and Aruna Viswanatha Jun 07, 2016 Click here to view the full article on WSJ.com TOPICS: Business Ethics, Countrywide, Financial Crisis SUMMARY: Rebecca Mairone was either a villain or victim of the financial crisis.

The legal battle to determine the answer shows how hard it still is to definitively say who was responsible for the housing bubble. The 49-year-old mother of two became a face of housing-crisis misdeeds when the Justice Department pursued civil-fraud charges against her for her work at Countrywide Financial Corp. A jury in 2013 found her liable, and a federal judge ordered her to personally pay $1 million, making her one of the few financial executives to be held to account for the housing bust. Until last month: A federal appeals court threw out the verdict against Ms. Mairone, who is now divorced and goes by her maiden name, Steele. The court ruled the government hadn't proved her actions met the legal definition of fraud. For Ms. Steele, it was exoneration. In her first interview since the 2012 case was filed, Ms.

Steele emphasized she had done nothing wrong and denied any mistakes in a controversial mortgage-approval program she helped create at Countrywide, called "Hustle." When she heard about the appellate ruling, she said, she texted her daughter at high school, who replied, "Are you sure?'" "It was such a long time coming," Ms. Steele said. For the government, which has gone after few executives related to crisis-era acts, it was a stunning setback. For Edward O'Donnell, a former colleague of Ms. Steele who filed two whistleblower lawsuits alleging fraud at Countrywide, one of which led to the action against her, the appeals court decision didn't change anything. He kept the nearly $58 million he collected in the other case. The contrasting results show the muddy and often maddening outcomes of authorities' efforts to prosecute individuals for the housing bubble. Lawyers add it highlights that doling out blame-and credit to those who blew the whistle-is rarely as simple as the public would hope. "That's the law for you," said Samuel Buell, a former prosecutor who is now a professor at Duke University's law school.

"It doesn't always come out cleanly." CLASSROOM APPLICATION: While almost no executives have been prosecuted for the bad decisions during the financial crisis, Rebecca Steele at Countrywide Financial Corp. was prosecuted for civil fraud charges. She has no idea of why she was singled out to be responsible for decisions made by executives and managers at Countrywide. She simply was involved in the controversial mortgage approval program that helped to expedite loans. The prosecution has upended her life and caused her to lose her employment. QUESTIONS: 1. (Introductory) Is it probable that one person at Countrywide Financial is responsible for the collapse of the company? 2. (Advanced) Should everyone who was involved in fast tracking high-risk loans at Countrywide Financial also have been held accountable for their participation in the downfall of the company? 3. (Advanced) Is there a logical reason why our court systems seem to go after one person in an organization and hold them responsible for the misconduct that involved a complete organization? Reviewed By: OC Ferrell, Belmont University Click here to view the full article on WSJ.com TOPICS: Mark Zuckerberg, Business Ethics, Facebook, hackers SUMMARY: Facebook Inc.

's first "security tip" for users is, "Don't use your Facebook password anywhere else online." If only Chief Executive Mark Zuckerberg had heeded that advice. Mr. Zuckerberg's Twitter Inc. and Pinterest Inc. accounts were taken over in recent days because he reused a password: "dadada," according to a person familiar with the matter. The password had appeared last month in a database of more than 100 million usernames and passwords stolen in 2012 from LinkedIn Corp. , the person said. Mr. Zuckerberg appears to have reused "dadada" to log into Twitter and Pinterest, allowing hackers to take over those accounts. The age-old advice to not re-use passwords is particularly timely at the moment. Beyond the LinkedIn theft, there were also recent leaks of 360 million email addresses and passwords belonging to users of MySpace.com. Since May, the website Leakedsource.com, which sells access to the stolen information, has added close to one billion records to its database, a LeakedSource representative said Monday.

The passwords may be several years old, but they can still be useful to hackers, who then use them to try to break into other accounts, hoping that they will stumble on users, like Mr. Zuckerberg, who reuse their passwords. "You have hundreds of millions of keys and you can try them on any major collection of locks you can find," said Alex Holden, the chief information security officer with Hold Security LLC, a company that investigates data breaches. The publicity around the hack of Mr. Zuckerberg's accounts may prompt other attackers to take advantage of the stolen data in the same way, said Liam O'Murchu, director of Symantec Corp. 's security response team. For Mr. Zuckerberg, the consequences of his account takeovers weren't severe. The hacker who took over his Twitter account posted his highly insecure "dadada" password to the site. That was embarrassing, but Mr. Zuckerberg is hardly a power Twitter user: He has tweeted only 19 times, most recently in 2012. For a time on Sunday, Mr. Zuckerberg's Pinterest page said "Hacked by OurMine Team." The group said it was "just testing" Mr. Zuckerberg's security.

Others have been less fortunate. More than 100 users of TeamViewer GmbH, a German software company whose software gives users remote access to computer desktops, have had accounts taken over since the LinkedIn data was made public. The company believes the activity is linked to the recent rash of data disclosures. CLASSROOM APPLICATION: The hacking of Internet accounts is obviously a grave concern for everyone after Mark Zuckerberg had his Twitter and Pinterest accounts hacked. He fell in the trap of using the same passwords in various accounts. His experience drives home the need to make sure that passwords are unique to each site and are complex enough to prevent this type of hacking from occurring. QUESTIONS: 1. (Introductory) If Mark Zuckerberg can have his social media sites hacked, what does that say about the current state of cybersecurity? 2. (Advanced) Whose responsibility is it to teach users of social media sites how to avoid being hacked? 3. (Advanced) Should the social media sites provide some type of digital protection?

Reviewed By: OC Ferrell, Belmont University To change your email preferences, go to Journal-in-Education Program Societe Generale trader Kerviel says risks 'encouraged' - BBC News BBC News Societe Generale trader Kerviel says risks 'encouraged' 8 June 2010 Close share panel Image caption Mr Kerviel appeared in court on Tuesday to defend his actions The alleged "rogue trader" at French bank Societe Generale has told his Paris trial that bosses "encouraged" him to take risks. Mr Kerviel, 33, is blamed for losses of 4.9bn euros (then worth £4.3bn). He has been under investigation since SocGen unveiled the losses in 2008, which it said were caused by unauthorised deals carried out by him. He denies accusations of forgery, breach of trust and unauthorised computer use. The former trader has always maintained the bank knew about the risky deals. "The daily encouragement from my superiors encouraged me to continue," Mr Kerviel told the court, according to the AFP news agency.

In a book published last month, he claimed that his superiors turned a blind eye to his trading while he was earning money for the bank, but intervened when he began to lose. 'Banking orgy' May 2010: publishes his autobiography, Memoirs of a Trader June 2010: trial begins in Paris The trial in Paris is expected to last three weeks. Mr Kerviel could face five years in prison as well as a fine of 375,000 euros if convicted. SocGen announced in January 2008 that it had been forced to unwind 50bn euros of unauthorised deals it says were made by the young trader. The revelation shook the financial markets, but was soon overtaken by the global sub-prime mortgage crisis, the collapse of Lehman Brothers and Bernard Madoff's Ponzi scheme. SocGen was fined 4m euros by the French regulator for weaknesses in its internal controls and has since spent about 130m euros on tightening its systems. The BBC's Christian Fraser in Paris says the case has come to epitomise for many in France everything that is seen as wrong with Wall Street capitalism.

It is a sentiment echoed by Mr Kerviel in his new book, The Spiral: Memoirs of a Trader. He wrote that he was "at the heart of the great banking orgy", and that traders were "only ever given the same consideration as a cheap prostitute: a quick thank-you for a good day's takings". 'Tense atmosphere' Mr Kerviel's lawyer Olivier Metzner said he would "show that at no point did Jerome Kerviel abuse the confidence of the bank". "Are the banking excesses due to Jerome Kerviel? Or are they due to a banking system?" Mr Metzner told France's Metro newspaper. He added that he expected the trial to open in a "particularly tense atmosphere". Mr Metzner is expected to argue that high-risk trades at SocGen were normal and that his client's managers knew what he was doing. He may also claim that the bank decided to turn against Mr Kerviel in order to divert attention away from SocGen's large losses in the US sub-prime mortgage market. Societe Generale's lawyer, Jean Veil, accused Mr Kerviel of "duplicity" for reassuring his bosses that nothing was wrong.

SocGen is also expected to submit a symbolic claim against its former employee for the recovery of the full 4.9bn euros that his trading position cost them. The police investigation into Mr Kerviel concluded early on that he had not personally profited from his activities and had not committed fraud. Mr Kerviel currently works as a computer technician earning 2,300 euros a month.

Question: Who was the trader alleged to be responsible for the French Société Générale trading loss of nearly five billion euros in January 2008?
Answer: Jérôme Kerviel