Posted on 01/28/2008 9:07:29 PM PST by NormsRevenge
PARIS (AFP) - Accused French rogue trader Jerome Kerviel walked free after judges placed him under formal investigation Monday for his role in seven billion dollars of losses at Societe Generale but stopped short of charging him with fraud.
Shares in the French bank took a battering as allegations emerged that a board member was guilty of insider trading related to the scandal.
Kerviel was freed on bail after being placed under formal investigation for "breach of trust", "falsifying and using falsified documents," and "breaching IT procedures", said his lawyer Elisabeth Meyer.
Judges rejected a bid to charge Kerviel, accused by the French banking giant of losing 4.9 billion euros (7.15 billion dollars), with the more serious crimes of "gross breach of trust" and "attempted fraud."
"It's a great victory," Meyer said, "but it's only justice being done."
Kerviel, 31, who had been in police custody for more than 48 hours, walked free Monday after being told not to communicate with Societe Generale employees or to work in any financial services capacity until the case was resolved.
But no sooner had the 'rogue trader' handed over his passport -- which turned out to have expired anyway -- than prosecutors lodged an appeal against his release.
The launching of a formal investigation in France does not automatically mean that a trial will follow.
If found guilty of breach of trust, Kerviel would face a maximum sentence of three years in prison and a fine of 370,000 euros (186,500 dollars), less than half of what he might have faced if fraud charges had been laid against him.
President Nicolas Sarkozy had earlier warned there must be consequences for those responsible for the scandal, with chairman Daniel Bouton, whose offer of resignation was rejected last week, firmly in the line of fire.
"When there is an event of this nature, it cannot remain without consequences in terms of responsibility," Sarkozy said.
Societe Generale shares had already plunged seven percent to 68.67 euros in morning trading, its lowest level since mid-2004.
Bouton went to London in a bid to shore up investor support for a proposed 5.5 billion euro capital increase to cover the trading losses and two billion euros of losses in the US sub-prime market.
But about 100 Societe Generale shareholders filed suit for insider trading and manipulating share prices after the market regulator AMF revealed that a supervisory board member had sold shares worth 85.7 million euros (126 million dollars) on January 9.
Societe Generale's stock has now lost about 50 percent of its value since May last year and 22 percent since the close on January 9.
The suit by members of the Association of Small Shareholders (APPAC) targets American Robert A. Day and two foundations linked to him, said lawyer Frederik-Karel Canoy.
Prosecutor Jean-Claude Marin said Kerviel had admitted during two days of questioning that "he carried out a certain number of acts to conceal reckless positions on the markets", but did not try to profit personally from the financial deals.
"He wanted to be seen as an exceptional trader, an astute market player," said Marin, adding that he was attracted by the prospect of a 300,000 euro bonus.
"He went beyond what he was authorised to do on the market, it is true, but he wasn't trying to plunder the bank."
During questioning, Kerviel claimed that other traders had resorted to the same manoeuvres, although not on the same scale.
The trader turned himself in to police on Saturday, since when Kerviel's lawyers have accused the bank of trying to "create a smokescreen" to cover up wider losses from the US subprime mortgage crisis.
They argue Societe Generale brought the losses on itself by hastily dumping what were in essence stock market bets.
Kerviel had held positions worth about 50 billion euros (73 billion dollars) when irregularities were first detected -- well in excess of the bank's market value of 35.9 billion euros and its shareholder funds.
Within days, Societe Generale moved to unwind his deals, incurring losses of 4.9 billion euros.
According to Marin, Societe Generale challenged Kerviel several times about risky operations, and each time he produced fictitious documents to justify himself.
The trader had bought futures in three European indices -- the Eurostoxx, the DAX in Frankfurt and the FTSE in London -- effectively betting on the future direction of the stock market.
This is insane.
I can only suppose that monitoring position limits is considered a vulgar Anglo-Saxon banking practice and therefore much disdained in La Belle France!
He’s only under investigation...He has not been formally charged...
Quote: “Kerviel was freed on bail after being placed under formal investigation for “breach of trust”, “falsifying and using falsified documents,” and “breaching IT procedures”, said his lawyer Elisabeth Meyer.
Judges rejected a bid to charge Kerviel, accused by the French banking giant of losing 4.9 billion euros (7.15 billion dollars), with the more serious crimes of “gross breach of trust” and “attempted fraud.”
So um, he didn’t steal no candy, produced a forged note from his mommy, and he tried to change his desktop picture.
Now, if after a 6 month investigation he could face formal charges of actual candy theft, forgery of mommy’s name, and trying to change his Home Page...
This is going to go down just like the TotalFinaElf slush fund for politicians personal use. Lots of initial outrage and media during the breaking of the news, then the Merovingian bureaucracy will obfuscate and prolong the investigation until only a few scapegoats are convicted with wrist slaps.
France has no rule of law, just the rule of man.
IE was the corporate browser and he installed firefox?
Leni
He also took a stuffed Teddy Bear that was meant as a Christmas gift as part of the French Foreign Legion’s Toys Pour Les Babes
Les pauvres infants!....Le Porc !
As I recall the original story, he had previously worked in some position in the company which gave him knowledge of a 'back-door' into the trading system. That knowledge let him completely bypass the normal system safeguards. He apparently also had a way to cover his tracks. This went on for quite some time before it was detected.
Ping. I have to catch a flight in a few hours and will be traveling for a few weeks. If you get any more articles on this please ping them so I can keep up with the story.
Thanks.
I think I see what the problem is.
Make money?
I’m sorry, but that such a junior person singlehandedly managed to establish binding trading positions in the name of the bank in excess of $70 billion demonstrates that SoGen’s system of internal controls is a giant joke, and a failure across the entire spectrum of segregation of duties, independent checks, the authorization, approval and documentation of transactions in the name of the bank and managerial oversight.
This story has the makings of a Michael Ridpath novel. All it needs is a mysterious murder.
Granted, this fiasco took place not in forex, but(allegedly) in equity hedging, which is usually such a simple activity that it can easily be taught to a fifth-former in a couple of weeks' time. Makes the point rather more forcefully, given that, now doesn't it? ;^)
Bottom line: 2/3rds or more of SocGen's public ''explanation'' is plain merde; good old American crapola, in English -- except this time it's French crapola. Their tale is plausible enough, but crediting a junior trader with more computer expertise than Q, Vic Haghani, Ned Irons, and James Bond wrapped all together is just a bit, er, shall we say, less than credible.
footnote: Haghani was one of LTCM's lead traders, as well as a heavyweight computer boffin (well, for finance, anyway). Edward N. ''Ned'' Irons is arguably the most brilliant computer scientist of the last 40 years, now involved in the 'Natural Language' project, and, with Pete Weiner, the co-inventor of both the original C-prompt in 1967 and the first multiuser multitasking minicomputer operating system in the early 1970s.
Good yarn. Haven't seen any of his recent works. Pls advise!
I agree that their are some serious shortcomings, to say the least, :=) with the company's internal controls. Apparently, this guy wasn't all that junior and was something of a computer whiz. Still, that level of sloppiness is inexcusable.
The trade value that he set up was something on the order of $3 billion. The losses ballooned to about $7 billion as the company unwound the positions into a market that was already dropping. As I understand it, their trades exacerbated the drop, increasing their losses.
There is more going on with regards to his brother....and more coming out every day.
When questioned by his boss about some ficticious traders ability to pay, he wrote a ficticioius email from the ficticious trader and the boss apparently accepted it.
Society General may not be left standing by week’s end.
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