Posted on 01/27/2008 7:58:46 AM PST by BenLurkin
PARIS (AP) ― A young trader blamed for losses that cost France's Societe Generale more than $7 billion hacked computers and used "several techniques of fraud," the bank said Sunday, as judicial officials said the man would remain in custody a further 24 hours.
In a five-page document, Societe Generale also sought to counter the notion that it had disrupted markets by unwinding the massive positions built up by the 31-year-old trader. The bank took three days last week to sell off the contracts on the Eurostoxx, DAX and FTSE indices, but said that it had done so in a "controlled" way.
French judicial officials, speaking on condition of anonymity because the investigation is continuing, said Jerome Kerviel can be held until Monday afternoon. Kerviel was taken into custody on Saturday.
Under French law, after 48 hours in custody, he must either be released or handed preliminary charges.
Societe Generale said Kerviel misappropriated other people's computer access codes, falsified documents and employed other methods to cover his tracks - helped by his previous experience working in offices that monitor traders.
"He had a very good understanding of all of Societe Generale's processing and control procedures," the statement said.
The bank said Kerviel had built up a position worth some $73.5 billion - which was eventually closed or hedged by last Wednesday with a loss of $7.21 billion.
"The position was unwound over three days in a controlled fashion," it said.
Jean-Michel Aldebert, of the Paris prosecutors' office, told reporters Saturday that Kerviel gave himself up of his own free will. The trader had not been seen in public since the bank announced his unauthorized trades in a statement on Thursday.
His motives remained a mystery, and the bank said it appeared that he did not gain personally from the trades. Acquaintances described Kerviel as reserved and considerate, a young man who once taught children judo and held the door for elderly neighbors.
Kerviel had been investing the bank's money by hedging on European equity market indices, meaning he bet on how the markets would perform at a future date.
Germany's Der Spiegel newsmagazine cited unnamed traders as saying Kerviel made a huge gamble on Germany's DAX stock exchange, buying some 140,000 DAX futures. When the exchange dropped, Kerviel racked up losses that amounted by mid-January to around $3 billion, said the report, posted on Der Spiegel's web site.
Societe Generale said it discovered the fraud last weekend and unwound the trader's losing bets starting Monday, when world markets tumbled.
Some experts have suggested Societe Generale may have exacerbated the fall and indirectly led to the U.S. Federal Reserve's subsequent decision to cut rates.
In an interview published Saturday, Societe Generale's chief executive, Daniel Bouton, dismissed as "absurd" the notion that the bank's actions helped fuel the turmoil on world markets.
Bouton said Kerviel had been betting throughout 2007 that markets would fall - a winning position. But the trader had overstepped his authority and was wagering much more money than he should have, Bouton said.
So at the beginning of January, Bouton said, the trader voluntarily created losing positions, to neutralize his earlier gains and cover his tracks.
But this month's quickly dropping markets turned "this sad affair ... into a Greek tragedy: His virtual losing position became huge," Bouton was quoted by Le Figaro as saying.
Despite the bank's losses, which Bouton called "enormous and abnormal," he insisted Societe Generale's viability was not at risk.
Experts and others, including France's prime minister, have questioned whether a single futures trader could have managed such large sums. Some have suggested Societe Generale might have used Kerviel as a scapegoat for other losses, like those related to the subprime crisis.
The bank says the scale of the damage was so great only because of the bad timing of the discovery - right before the worst day in world markets since Sept. 11, 2001. It also fired Kerviel's supervisors.
Not a soul in finance believes the cover story being put out by the SocGen fools. The margin on his positions alone *had* to be known to management. This looks like Leeson/Barings2, where top management was happy when the “rogue” was making big bucks ($2bill in 07) and claims plausible deniability when the bets turn sour. Zut!
This is the biggest story not being told this week.
It really points to how weak the controls are.
The Enrons of Europe will start surfacing very soon.
This guy may have hacked and hidden his $75 B position in the Soc Gen computers.
However, unless he also hacked into the trade counter-parties/brokers computers, someone outside Soc Gen should have been alerted to the size of the humongous positions (very likely well over risk-limits set by normal banks).
Something fishier than just one rogue trader here, no?
He should have bought puts instead of calls - it would never have made the news ...
This lost “money” isn’t a stack of bills that got shredded or burned. It went somewhere. Seven billion dollars left the accounts of the losers and ended up somewhere. Who are the winners? Will we ever know?
so what? rogue commodity traders have driven gas and crude oil for soros, pickins and the clinton cartel
I ask myself what is more likely?
1. Europe, with its dying population, crumbling infrastructure, and lack of innovation and invention is outperforming US/Japan.
or.
2. The biggest fraud in the history of the world is starting to unravel right now and I should be shorting the piss out of the Euro for all I’m worth.
Ya think?
The sub-prime deal is global, not just US banks. The blow-up (meltdown) is the government controlled media smoke and mirrors tool to cover up the the massive gains of a select few.
Sounds more like a comedy to me.
I would like to think that someone from the “west” did this to France as payback for receiving funds from the Iraqi oil money three plus years ago. It would have added up to about the same?
Me and my Dad were laughing our a**es off at the news reports about this.
He was hedging on plain vanilla futures! Basic derivitives! The sheer amount of SocGen’s hedging is impossible without Kerviel having access to 30-40 billion at all times.
Like Leeson, he was a ‘rogue trader’ in the same way that Im a ‘bad kid who will be grounded, officer!’ when the cops catch me stealing something my pops told me take.
The freaky thing is, that 7 bill loss would have a gain if the market had moved only fractionally in a more positive direction Mon-Wends. There is so much more to this story, likely involving Kerviel’s attempted masking of massive off-sheet loses by SocGen by taking these huge positions. The fact is, if they’d maintained Kerviel’s positions, they’d be laughing. Why unwind his positions?
There are two sides to every trade. There is a buyer and a seller.
The $7 billion is in the accounts of those individuals and institutions who were on the other side of his losing posititons.
no following that money trail.
“more than $7 billion” was the first day.
“tens of billions” the second day.
Unless one can supply a motive for his trades, the story is half-told.
Is it practical for him to collude with counter-parties?
Agreed. The entire risk management and back office group didn’t notice ANYTHING? C’mon. That is impossible.
Either 1) the entire risk management and book office group is incompetent and should be held accountable (e.g, fired, fined and serve prison time) or 2) numerous people were in on it and stood to earn large profits from it.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.