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