The trial of Jérôme Kerviel, the rogue trader blamed by Société Générale for losses of €4.9bn, begins tomorrow in Paris. According to the FT:
He faces up to five years in prison, a €375,000 fine and damages potentially of €4.9bn if found guilty of breach of trust, computer abuse and forgery.
Mr Kerviel was fêted as a Robin Hood figure against financial capitalism when he burst on to the scene two years ago.
Now the public’s imagination has been caught by what promises to be a riveting joust in Paris’s medieval Palais de Justice between two of France’s best-known lawyers – Olivier Metzner defending Mr Kerviel and Jean Veil for SocGen.
The trial is expected to center on Kerviel’s claims, detailed in his recent book (French only), that his superiors were aware of his trading activities and that it was common practice at Soc Gen to exceed trading limits. As I’ve already noted, much evidence suggests that the firm did willfully, or at least recklessly, disregard the warning signs of rising operational risk levels in pursuit of higher trading profits. I’ll elaborate on that evidence as the trial progresses.
As is common in rogue trading cases, there has been no evidence of direct knowledge by superiors at Société Générale of Kerviel’s overnight directional trades, though supervisors and bank management ignored numerous warning signs regarding the size and scope of these trades, leading to a reasonable inference that at least some supervisory personnel likely turned a blind eye to Kerviel’s trading irregularities. Moreover, emails confirm that Kerviel’s immediate superior was aware of, and acquiesced in, some early intra-day unauthorized positions on equities and equity index futures.
Hopefully, the trial will provide more information and “surprises,” as promised by lawyers for both sides. In any event, I plan to be back with news of the trial, more information about Kerviel, his trades, and his legal defense, and perhaps some comparisons to similar rogue trading incidents.
SocGen has reportedly invested €130m in improving its internal controls since the incident and has replaced all management involved in the affair, including former executive chairman, Daniel Bouton.
Nonetheless, things are not looking up for Soc Gen at the
moment. Rumors
swirled on Friday that the bank could be facing tens of billions of dollars
in derivatives losses, knocking 7 per cent off the share price:
Societe Generale declined to comment on reports today by Reuters and CNBC that cited speculation the bank may face derivatives losses. “If we had something to say, we would have already communicated,” said Laura Schalk, a spokeswoman for the Paris-based bank.
Related
Posts:
Kerviel’s
Fake Trades: Genius Or Copy Cat?
Kerviel’s
Fake Trades: The Anatomy of A Cover-Up
On
Warning Signs II: Follow The Money
On
Warning Signs: You Can’t Get There From Here
Rogues
Versus Scapegoats
Kerviel Trial Opens to Fanfare
Jérôme Kerviel to Société Générale: Stand By
Your Man
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