http://www.guardian.co.uk/business/2008/jan/29/europeanbanks.banking SocGen in disarray as judges throw out fraud charge against trader · Bank admits it was warned on more than one occasion · Shareholders go to court over alleged insider dealing David Gow and Emilie Boyer King in Paris The Guardian, Tuesday January 29 2008 The Société Générale affair descended deeper into the mire last night as investigating judges threw out the most serious accusation, attempted fraud, put forward by prosecutors against the trader behind the â¬4.9bn losses, Jérôme Kerviel. They released him under judicial supervision, or bail, after two days of police questioning, leading his lawyers to claim a substantial victory. The surprise threatened to undermine the bank's increasingly fragile defence that he had used ingeniously fraudulent devices, including hacking into colleagues' internet codes, to hide his gambling on equity derivatives trading markets. Kerviel ran up an exposure of â¬50bn, costing France's second-largest bank a record loss in banking history as it unwound his positions last week. The prosecutor's office, which wanted to charge him with fraud, said it would appeal against the release. He has been placed under formal investigation for lesser allegations of breach of trust, computer abuse, and falsification. "There is no fraud," said Christian Charriere-Bournazel, one of Kerviel's two lawyers, accusing Daniel Bouton, SocGen's chief executive, of "throwing him to the dogs" and "holding him up for public vilification." Earlier, a lawyer acting for 100 small shareholders sued the bank over insider trading and market manipulation, and minority investors accused it of issuing misleading information. And Kerviel, depicted by the bank as a "lone" rogue trader, also increased SocGen's woes by accusing his colleagues of having similarly traded beyond their limits. Prosecutors said the bank had been alerted by the Eurex derivatives market to the scale of his positions as long ago as November last year. Prosecutor Jean-Claude Marin said Kerviel had been able to fool his employer by producing a fake document to justify the risk cover - a comment seized upon by SocGen as it struggled to defend itself against charges its controls were so extraordinarily lax that Kerviel acted unapprehended for 15 months. Eurex said its controls "functioned correctly at all levels, also in this case", while Socgen admitted it had been warned by the Deutsche Boerse subsidiary more than once. "There were false trades picked up but he [Kerviel] explained them away, justified them, or fabricated covers." An enraged Colette Neuville, head of Adam, a minority shareholders' lobby, disclosed she had asked the AMF, the French financial services authority, for a formal inquiry into alleged insider trading by a director and/or others at the bank. She also wants the AMF to investigate whether the bank deliberately misled investors over its sub-prime losses in November when it put them at â¬230m, only to announce a â¬2.05bn hit two months later. She told the Guardian. "There are strong possibilities that the information given to shareholders was incorrect - misleading." The lawyer, Frederik-Karel Canoy, said he had begun legal action against SocGen over how it unwound billions of euros in allegedly fraudulent share deals last week. The bank said on Sunday it unwound Kerviel's positions, â¬50bn, "in particularly unfavourable market conditions" between Monday and Wednesday last week after discovering them on January 18. Canoy, a thorn in the flesh of French companies, told Reuters the bank should have told markets about its pending losses before its huge three-day selling spree. SocGen says it unwound these positions in a controlled manner and within a volume limited to less than 10% to "respect the integrity of markets". It won support from Bank of France governor Christian Noyer: "The way Société Générale has handled its affairs to unwind positions in a very short space of time, and without moving the markets, contrary to what has been said, because they remained within normal trading limits ... was very professional." Canoy also filed a complaint about the sale of 1m shares by SocGen director Robert Day on January 9 and 10, disclosed in AMF filings, shares worth â¬85.7m in his own name, and â¬8.63m and â¬959,066 from two foundations "linked" to him. The bank said the sale had come "well before" it knew of any fraud, while sources, dismissing Canoy's move as a stunt, insisted that only a few senior officials, excluding Day, could have known of pending losses when he sold his shares. But Neuville, in a letter to the AMF, insisted that share sales had taken place just before Socgen shares started to slide on January 14 - or four days before Kerviel's fictitious and fraudulent dealings were first detected inside the bank on January 18. "There are people who had access to information that was not publicly known; there's a suspicion of insider trading, and there must be a formal inquiry." Kerviel has admitted hiding his activities but accused colleagues of trading beyond their limits, Marin said earlier. Prosecutors had sought charges against Kerviel for offences of forgery and fraud, with a sentence of up to seven years. Marin said the 31-year-old, who gave himself up on Saturday, had told investigators that his and other irregular deals had taken place since the end of 2005, a dagger at the heart of Socgen's defence that he was a one-off fraudster of genius. Marin said the investigation had shown Kerviel did indeed act alone - to prove himself a star trader and earn a bonus of â¬300,000, rather than to harm the bank. The bank has so far dismissed two managers over the scandal: Luc François, head of equity derivatives trading, and Jean-Pierre Lessage, Kerviel's direct manager.
The government will protect SocGen http://ukpress.google.com/article/ALeqM5ifBCRtNISw4Mxnwm9rSeqibYNg1A France to defend Societe Generale 1 hour ago The French government will back troubled bank Societe Generale against any attempted takeovers while it remains weakened by the rogue trader scandal, Prime Minister Francois Fillon said. "The government will not let Societe Generale become the object of hostile raids from other banks," Mr Fillon said, adding that it was also guarding against any attempt to destabilise France's second-largest bank. He indicated new banking regulations might be needed - after investigators pinpointed how Societe Generale's controls failed, allowing trader Jerome Kerviel to lose £3.5 billion in share gambles. Kerviel has been formally put on preliminary charges of breach of trust, forgery and unauthorised computer activity and released on bail in spite of objections from prosecuting lawyers. Prosecutors have lodged an appeal against the decision to free Kerviel. Societe Generale is fending off mounting questions about how it handled the fraud blamed on the 31-year-old futures trader. Analysts say the bank is now vulnerable to a takeover, speculation that the French government is doing its best to downplay. The bank and prosecutors said Kerviel does not appear to have profited from his unauthorised dealings, and his lawyers have described him as a "modest boy" who got in over his head. Prosecutors, based on Kerviel's account to investigators, confirmed Societe Generale's claims the trader used other people's computer access codes, falsified documents and used other methods to cover his tracks - helped by his previous experience in other offices at the bank that monitor traders. The bank says he bet around £25 billion on European markets.
The bank is 99% responsible... For total lack of management... And the bank is wide-open to lawsuits. As for the trader... he will end up in a Turkish prison.
If true, that's pretty insane. Why does someone blow a situation in life where they're on top of the world, to seek .... well nothing, and end up in prison to boot. People are strange.
No, the trader will probably get a book and movie deal and end up working for a hedge fund here just like Brian Hunter or Steve Cohen.
What a peice of wisdom from a lawyer. "Canoy, a thorn in the flesh of French companies, told Reuters the bank should have told markets about its pending losses before its huge three-day selling spree." lol
"The lawyer, Frederik-Karel Canoy, said he had begun legal action against SocGen over how it unwound billions of euros in allegedly fraudulent share deals last week. The bank said on Sunday it unwound Kerviel's positions, â¬50bn, "in particularly unfavourable market conditions" between Monday and Wednesday last week after discovering them on January 18." This is the Perry Mason moment of the whole debacle.
I don't believe it.. I have heard that the guy developed a unique way of distracting his supervisors from monitoring his trade activity. Apparently he declined to shower for weeks at a time. Those around (including the risk management staff) him gradually increased their distance from his desk. I hear that one of his colleagues characterized his smell as akin to "over ripe goat cheese stored in gym socks". He IS French after all....so we assume this was not unusual. nevertheless, no one had the courage to look into his trading activity until it was too late. Apparently one of the risk managers acquired a WWII vintage gas mask and looked over his shoulder. He found the damage and reported it to his superiors, but it was "too late" Jerome or "Le Gran CheeseDick" as he was now nicknamed, had struck a fatal blow into the heart of one of the biggest banks in France....Oh ze horror.....Oh ze zmell...oh ze humidity....