Jan 01, 2012
— read in fullFamous financier: Jerome Kerviel
Lone architect of the biggest fraud in finance or just an unlucky trader? The case of Jerome Kerviel has raised important questions about how much responsibility an individual trader can have in a global financial market.
Jerome Kerviel started working at Societe General, a French bank, in 2000. He had a number of roles, where he learned about the bank's processing and control procedures. In 2005 Kerviel became a trader in the arbitrage department, trading in European stock futures.
On January 18, 2008 suspicions were aroused about trading activity and Societe Generale set up a team to investigate. They questioned Kerviel who apparently admitted to ‘unauthorised acts’, including making fake trades.
In the morning of January 20, 2008, Societe Generale's investigation team calculated a huge loss and informed the Governor of the Bank of France. In the afternoon, the Chairman of the bank told a meeting of Societe Generale's Audit Committee that he had decided to close Kerviel's trading position as soon as possible and would not make any public announcements until this has happened.
When European markets reopened on Monday January 21, Societe Generale began to unwind the "fraudulent position” and European stock markets suffered their most severe falls since the attacks of September 11, 2001 as a result.
On January 23, 2008 after trading to close Kerviel's position was complete, Societe Generale calculated its final total loss to be 4.9bn Euros (£3.7bn). At this point, the Governor of the Bank of France informed the French government. On January 28, Jerome Kerviel was placed under formal investigation. A Paris prosecutor asked for preliminary charges of forgery, breach of trust and fraud to be filed against him. Like Nick Leeson, the rogue trader whose actions caused Barings bank to crash, he was accused of taking big risks, incurring enormous losses and then trying to cover it up through creating fictional transactions.
This case raised a number of questions:
- How did he do it?
- Was Jerome Kerviel operating on his own?
- Were his immediate bosses aware of what he was doing?
- Why did it take the bank so long to discover the losses?
Kerviel was eventually convicted for breach of trust, forgery and unauthorised computer use in October 2010, after the court rejected his defence claim that Societe General knew what he was doing, but ignored his actions as long as he was making a profit. Kerviel was sentenced to three years in prison and ordered to repay 4.9 billion euros in damages, although he remains free while he appeals this verdict.
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