Rogue trader, Revelations from LeMonde page 1

Discussion in 'Wall St. News' started by momoNY, Jan 30, 2008.

  1. momoNY


    Here are some excerpts from the Kerviel revelations to the police. The article is in French. Bellow is my speedy translation as the article is long and my English is not that great.

    "I started at SocGen in august 2000 in Middle-Office operations, ..., I left this position during the second semester of 2002. They asked me then to become an assistant trader ... During the second smester of 2004, I was assigned to be assistnant to a desk(...). As, I was in the same raw as the traders' offices, I started to be more and more interested in trading activity (...). Beginning of 2005, I joined trading on the desk. (...) I was on that position until last week. Sunday January 20th, (...) the trading manager asked me not to ever come back.

    When I joined SocGen, my salary was 35000 euros gross, without bonuses. For 2004, I received in 2005 15000 euros bonus. For 2006, I received in 2007 60000 euros.

    For 2007, as of today they still did not tell me the size of my bonus. I have to precise that my interview at the end of 2007 went very well and they were just not in agreement with the size of my bonus. I was asking for 600 000 euros and they were offering me 300 000 euros. To this day I did not receive anything for 2007. As for my base salary it has been regularly on the increase to reach 48000 euros gross.

    I don't deny the facts against me. I admit having input fictive operations, I admit the cancellation of fictive operations; concerning taking a non authorized position in futures, however, I'm a little less affirmative. My duties were clear: they consist in market-making in non volatile instruments: certificates(?), futures, ... There is no precise limit written signed by my hands. (...)

    Before anything, I have in mind making money for my bank. It is my prime motivation. (...) It was about making money for the bank only, and in no case to enrich myself. What is arguable, and I agree, is the means developed in order to reach that.

    My first experience in this was in 2005, I have then initiated a position in Allianz shares, by betting the market wa going to fell. Little time later, the market tanked following the terrorist attacks in London, and it was the jackpot 500 000 euros. This happened little after starting as a trader at SocGen. I had already the idea of a deal to cover my position. I had a mitigated attitude because I was proud of the result and surprised at the same time. That generates the will to continue, there is a snowball effect.

    (...) End July 2007, The market crashed under the subprime woes and markets went south. (...) My result jumped: 500 million euros, and I found my self in the same situation as lastly, and this time to the upside, and did not declare this result which does not appear in SocGen books. I mask with a fictive operation(...). It is true that I was intimidated by this amount of 500 millions and mainly not knowing how to announce it (...).

    In December 31st 2007, I did not have a "break" and my "mattress" (mattress: reserves) were at 1.4 billion euros, not declared to the bank. At this stage, I was overwhelmed by the event and did not know how to present to the bank, this represents a cash of 1.4 billion undeclared. No one has ever achieved this result which represents 50% of the total result of the division of equity indexes at SocGen. I did not know how to deal with that, I was glad, proud of myself, but did not know how to justify that. Thus, I decided not to declare it to the bank and to cover it by a fictive inverse operation. (...).

    For the bank, as I was not supposed to have made that money, I declared only 55 Million of profit. (...) I therefore, gave false data on these operations, mainly false emails. I have fabricated a false email by reusing the head of an authentic email and changing the content. (...).

    Beginning og July 2007, I was "killed" by the satisfaction of this success and the astronomical size of the amount I have to announce knowing that these results were generated by false operations. Beginning of 2008, I was long cause the market has significantly evolved (changed) and I see the market coming back in the next three months, and I still believe that in the next three months the market will go up. So, I went long, without any hesitation(...). Friday 18th, in the day, I was positive despite the strong volatility of the market, it not until the close of the session of the 18th that I was negative.
    I was thinking that I'll see the evolution of the market when I come back Monday, and (was) bet(int) on the rise of the American market on Tuesday. What I could not envision was that Monday I won't be any longer a trader at SocGen.

    (...) The techniques I used later were not sophisticated at all, in my opinion, any control, correctly done, would have discovered these operations. There was no machiavelism on my part.

    It is obvious that I would not have had such results without this system(...), My hierarchy, would have asked me to cut my positions because of their size. I had no illusions, I knew that I will have less bonus than in other desks (companies), and I was not going to be payed in line with the standards of the market, but that did not alter my motivation a bit. I have understood (figured out), during my first interview in 2005, that I was less regarded than the others because of my college education, professional and personal backgrounds. I was not hired directly for the front-office, but went through the middle-office, and I was the only one in this case. But I was not living that badly I assure you.


  2. merci beaucoup pour votre translation
  3. wucah


    Yeah thanks for the translation, can't wait for more!
  4. daybyday


  5. momoNY


    I'll post the rest late tonight or tomorrow morning.

  6. [​IMG]

    Head of the Compliance Dept.?
  7. subban


    That link is garbage. It put spyware and my internet web browser opened up like 60 different versions.
  8. momoNY


    OUFFFFF, that was laborious! sorry for any mistakes, the French used was far from academia, it is hard to translate 100%, mainly because of the tense. sometimes present is used to speak about something in the past. Here is the last part of the interrogations in two posts.

    (...) Each trader works in relative independence. (…) In November 2007, on successive intra-day operations(daytrading), I did few roundtrips in the DAX, but seeing that it was working, I took also positions using automates from colleagues at the same time and everybody knows it. During this one day I made 600 000 euros. My manager then wanted to know the reasons behind my positions (strategy). I refuse to communicate the fundamental (economical) reasons, because it goes down to giving them a blank check. I can’t believe that my managers were not aware of the sums that were being put in play (size of my bets), it is impossible to generate that kind of profits with small positions. That leads me to say that when I’m positive (profitable), my hierarchy has a blind eye on the methods and the volumes I’m engaging (betting). In normal activity, a trader can’t possibly generate that much cash.

    (…) I still believe they were aware of my positions, and on this I inform you that there were multiple alerts received by my hierarchy. During 2007, multiple questioning emails (…) were sent to many of my assistants in order to get explanations. (…). The bank should have been alerted by other indicators. Another warning would have consisted in doing a ratio between the result of 55 million I did in 2007 and the volume of operations. Two requests for information in November 2007, coming from Germany Eurex, were sent to question the volume of operations done by me (…). Following this investigation I was interrogated (…). I was able to justify myself.Beginning of January 2008, I exploded my credit limit (…). I received then interrogating emails. (…) To justify, I produced a false email.

    (...) The simple fact that I did not take my vacation days in 2007(only 4 days) should have alerted my managers. It is one of the elementary rules of the internal control. A trader who does not take vacation is a trader who does not want to leave his book to another trader. (…)

    I was generating cash, thus the signals were not that worrying. As long as we make money, and that is not very apparent, (NOT VERY FRENCH HERE!!!), we say nothing.

    [/b]The revelation of these hidden operations, would it have as consequence the reduction of your yearly bonus? [/b]

    One can think that. At any moment, they could argue that the hidden positions were not validated in order to evaluate my bonus.

    When you were taking these positions, covered with fictive operations, haven’t you ever evaluated the risk of being dismissed when they are discovered?

    I was asking myself the question from time to time, but I was always wining. I was saying to myself that SocGen would never fire someone who is generating that much cash.

    But, you were not always wining on your positions? The risk of being fired following an unexpected control of a fictive operation generating a loss was certain and conceivable?

    It is true that the risk exited, many traders were fired for these reasons.

    Despite all, you were willing to take this risk?

    I was taken in a spiral where this question was totally omitted. It was too late.

    Knowing that you think that your bonus will be at the discretion of you hierarchy, what were the criteria, in your opinion, that are taken into account by your hierarchy to evaluate your bonus?

    I still ask myself the question: What are the criteria? What is been said is that the bonuses oscillate between 3 and 7% of the declared result.

    So the “materess” that you were holding “off” (in a hidden way) was not included in the computation of your bonus for 55 million of declared profits?


    (...) Concerning me, this valuation at 1.4 billion is important but came too fast, from 500 mill (end October 2007) to 1.6 bill end November 2007 to be able to declare it without being questioned. It is true that this out of proportion compared to the declared result (…). Not seen not caught, caught hanged (French expression).
  9. momoNY


    Did anyone made a comment on the 50 bill that you took (position) the fist 15 days on January?

    I had the sentiment that the market was going to rebound.

    Why such huge bet, disproportionate compared to all your precedent bets?

    It was a way of cost averaging down, and moreover I know that the market is at its very low and will go up very soon (or very rapidly).

    (...) I had no certitude that these strategies will go unnoticed. I have no reason to think that. I could only hope.

    Are you a player (gambling)?


    Are you a member of a game club?

    Yes, I play pool and I’m a member.(...).

    You still confirm that you had no other objective but making money for SocGen and you reached you goal as of December 31st 2007?

    Yes, in fact I remind that the result was 55 mill euros, and the result of 1.4 bill that serves (???????) was omitted and does not appear in my P&L but that was real. I’m blocked by the amount and the sum to announce to my hierarchy. I HAVE THE INTENTION TO ANNOUNCE IT TO THE TOP MANAGEMENT OF THE BANK AND I’M THINKING ABOUT THE WAY TO DO IT (!!!!!!!!the guy may be does not know at the time that it is public???)

    Taken into the spiral, how do you imagine to announce that without risking your position?

    I tough that the simple fact of announcing 1.4 bill would satisfy them.

    Without envisioning that the way they were omitted (hidden) would trigger (result into) a sanction?

    For the sanction, I couldn’t evaluate it. The bank has as first priority making money. How can one justify a sanction towards a trader who generates 1.4 billion in profits (...) ?

    We notice that your commitments (bets) were stable and balanced until end of March 2007, your activity is more aggressive between end of March and beginning of July 2007 and from end of September to end of November. What are the reasons of taking these positions?

    In april, it was the beginning of the sub-prime problems. I read the press and saw that they mention the small risk of spreading into banks and the real economy. I started to study the subject and decided to sell futures and to increase my short position. The more the time passes the more I’ m convinced of the risk of a reversal. I increased my position until mid-July up to 30 billion euros and sold it end of July for a profit.

    Were you aware, in your aggressive position taking, of being beyond a classical mandate (standard limit)?

    All my colleagues take positions more or less important. Mine was indeed very high and I was conscious about that. We can therefore say that I was out of limit of the mandate, but I remind you that I did not sign any precise limit (value) to be respected in my book.

    Were you dispassionate regarding the size of the positions taken ( 30 billions in July) ?

    No, I was conscious of having a big position but I’m very convinced of the well founded of my analysis.

    This consciousness of being out of limit was translated by recording diverse fictive operations whose forms and means have varied in order to dissimulate your commitments?


    Assuming that your huge positions on futures had been discovered by SG between beginning of March and end of July 2007, the period where your P&L was negative with a PIC of minus 2,5 billion euros end of July 2007, what would have been your system of defense?

    My justifications would have been the same. The hope of the reversal of the market. However, I repeat again, from March to July my hierarchy has received a set of warnings, which makes me think that the size of my positions were known.

    Why then the compliance services did not seek to stop you?

    It suits them to let me make money.

    You are not answering my question. I’m talking of the period of March o July where your P&L was negative?

    In case of discovery during this period, all the team would have been fired. Including my hierarchy in cascade. In fact it is the case today. In both cases, SG has interest to have a blind eye. Being a winner or a loser.

    If that is your opinion, that means that you are very frank and ready for the battle without limit?

    In certain ways.

    You really think that?

    No matter what, I was risking, in one case or the other, to loose my salary if my commitments were discovered. I have certainly interest in hiding my commitments vis-à-vis of my hierarchy, being conscious of the risk of no longer having a job. And my hierarchy has interest not to say anything for the same reasons as well.

    I have a different opinion in a sense that your hierarchy had every interest discovering sooner than later your out of norm positions to stop, in one hand, these important positions and in the other the damages that are likely to harm your hierarchy. You can’t deny that they would have been themselves through a seris of interrogations to justify this let go. Which is not in their interest. What do you think?

    I don’t know.

    I think your hierarchy has every interest to stop you in your élan, I mean as soon as your results are negative. The only reason this was not done, is because your maneuvers were sufficiently efficient to pass through all controls and at this time, as opposed to you, they don’t have yet to worry about the loss of their salary or their position.

    Since beginning of April, P. B. and M. R were informed by email by the accounting department (…). The only thing they asked me was to find a way to put things in order (following the rules). They don’t intervene. The other warnings they received later did not make them react either, that means it did suit them. At the beginning as well at the end of my maneuvers, they did not want to intervene. We, them and me, were doing the same job. They know all the cogs.

    The non-detection of your maneuvers by your hierarchy, was it of the nature to push you all long 2007 to increase the size of your commitments to reach 50 billion euros?

    That did not stop me. Their passiveness may have pushed me to continue and as I told you I was soon dragged into a spiral within which I found myself and could not get out.
  10. Beautiful stuff.

    I'll have to catchup tomorow.


    We are driven by our base emotions, wants, needs and desires.
    #10     Jan 31, 2008