Jerome Kerviel, who stands accused by Socit Gnrale of losing the bank $7.2 billion due to rogue trading, has claimed that many of his colleagues were also guilty of fraud.
Admitting that he breached legislation, the 31-year-old said he was not the only worker at the bank to flout the law. Kerviel has been formally charged with fraud, forgery and breach of trust but his lawyers claim he had “committed no dishonest act” and had been made a scapegoat by the bank.
Co-workers including security checkers and managers have been implicated in the futures trader’s dealings.
“There were other traders who had acted in a similar way by exceeding their trading limits,” says Prosecutor Jean-Claude Marin.
Daniel Bouton, Soc Gen chief executive, called Kerviel a “terrorist” and says, “This fraud has been committed by a great pretender, who has succeeded in navigating the many sophisticated control systems that we have, to permanently conceal what he was doing, while also going about his normal activities.”
French Finance Minister Christine Lagarde has backed the banks handling, saying Kerviel appeared to act alone. But it is clear that the French government is monitoring the situation.
Kerviel has admitted that he hacked into computers and faked e-mails to hide his trading positions since 2005.
Eurex, the derivatives exchange owned by Deutsche Boerse and SWX Swiss Exchange, contacted Socit Gnrale in November to question Kerviel. Kerviel produced fake documents to justify the risk cover.
Kerviel manipulated the system by working in the back-office for five years and learning how to monitor trades. He moved to the front office as a trader in 2005. He used falsified documents and his knowledge of monitoring systems to make high-risk trades. The trader took risky bets on the futures market in Europe with positions around $73 billion — more than twice the banks market value.
Kerviel cost the bank more than famous rogue trader Nick Leeson, who caused Barings Bank to fold in 1995. Philippe Carrel, executive vice president Reuters Trade & Risk Management, notes one important similarity: Both became familiar with the back office and then used it to their advantage.
Carrel says now is the time for banks to be more proactive about operational risk management, focusing more on real-time.
“An investigation is ongoing so we must remain cautious until we have all the facts,” he says. “It appears, however, that leveraged trading requires continuous real-time monitoring of trades and trading limits. Typical issues at banks such as daily reconciliations of trades and back-office settlement backlogs are all potential vulnerabilities in times of unusual or highly volatile markets. Assessing the risks of leveraged positions demands the review of assumptions underlying the financial models and data being utilized.”