Jerome Kerviel and Societe Generale – Les Jeux Sont Faits: Three Years and $6.7 billion
Les Jeux sont fait, the chips are down for Jermoe Kerviel. To refresh memories Kerviel who was on trial for allegation of being a rogue trader and had become a celebrity in France (see previous post). It was announced that former Societe Generale trader Jerome Kerviel was sentenced to to five years in prison, with two suspended, and barred for life from working in financial services by a Paris court for his role in a trading scandal and ordered to reimburse the French bank 4.9 billion euros (approximately $6.7 billion USD) – a sum he will never be able to pay back. The 33-year-old was found guilty of breach of trust, computer abuse and forgery.
The New York Times reports that wearing a dark suit, black tie and starched white shirt, he stood impassively while the verdict was read, betraying no emotion.
Here is a video from CNBC about the verdict:
Since leaving Societe Generale Kerviel, took a job with Lemaire Consultants & Associates an information systems and computer security consulting firm.
Here is Reuters take on the story:
At the end of Kerviel’s high-profile three-week trial in June, his defense team pleaded guilty to computer abuse but rejected the other charges.The public prosecutor has recommended Kerviel serve at least four years behind bars, with a fifth year suspended. Tuesday’s verdict is critical for SocGen, which has worked hard to clean up its image since the scandal.
Caroline Guillaumin, a spokeswoman for Société Générale, said the damage award was a “symbolic” sum that the bank did not expect would be paid. “But it is important, and we are satisfied, because it recognizes that the entirety of the bank’s losses are attributed to Jérôme Kerviel’s actions,” she said.
Mr. Kerviel’s lawyer, Olivier Metzner, said he would appeal immediately. “This judgment is totally unreasonable,” he said outside the court. “It suggests that the bank is not responsible for anything, that no system of control could have prevented this.”
Dominique Pauthe, the presiding judge, agreed that the former trader could remain free until the outcome of the appeal, which legal experts said was unlikely to be heard before late next year.
The prosecutors, Jean-Michel Aldebert and Philippe Bourion, had requested that Mr. Kerviel spend at least four years behind bars. The maximum penalty possible on the charges faced by the former trader — breach of trust, forgery and unauthorized use of the bank’s computers — was five years.
The unwinding of an estimated €50 billion in unauthorized open positions on Mr. Kerviel’s trading book in late January 2008 cost Société Générale €4.9 billion, the equivalent of about $7 billion at the time.
Mr. Kerviel acknowledged at his trial that he had falsified documents and entered fake trades to hide his activities, but he maintained that his bosses had deliberately turned a blind eye to what he was doing and had tacitly encouraged him as long as it was profitable.
Specifically, around 2002 Kerviel created a fictional rugby loving hedge fund friend name “Matt” in response to inquiries from broker, Moussa Bakir, who had asked him about his trading strategy. Kerviel told Bakir all about “Matt”, but whom Kerviel had imagined into a wanna-be billionaire hedge fund manager who loved rugby.
Reading from excerpts of the 73-page ruling, Judge Pauthe said Société Générale’s failure to detect Mr. Kerviel’s dealings for more than two years did not absolve the trader of primary responsibility for the bank’s huge losses.
“The lack of vigilance by the bank in monitoring the only existing limits, acting as alert signs, hardly exempted Jerome Kerviel from his duty to inform his hierarchy of the reality of his excesses or to come back within the limits imposed,” Judge Pauthe said. “By his deliberate actions, he put in peril the existence of the bank that employed 140,000 people, of which he was a part, and whose future he mortgaged.”
The case continues to attract intense interest in France, though outside financial circles it has been largely overshadowed by the sequence of events that has shaken the world economy since the collapse of Lehman Brothers in September 2008.
Some have portrayed Mr. Kerviel’s activities as emblematic of the very culture of excessive risk at the root of the global financial crisis.
During the trial, he described himself as “someone who tried to do his job the best he could, in the interests of the bank.” He added: “My objective was to help it make money.” In a newspaper article last year, he was quoted as saying that he had taken “crazy risks” for “astronomical gains that brought me, sometimes, great joy.” Daniel Bouton, the former chief executive and chairman of the bank, has described Mr. Kerviel as “a crook, a fraudster and a terrorist” who acted alone and nearly destroyed the bank.
Mr. Kerviel had been placing bets outside his trading limit for more than two years. The bank has said it booked €1.4 billion in profit in the fourth quarter of 2007 from his unauthorized dealings. In the aftermath of the scandal, Mr. Kerviel spent five weeks in pretrial detention and became something of a French folk hero. He even wrote a book in French (L’engrenage : mémoires d’un trader) about his exploits in which he states, “I was only a prostitute in a great banking orgy.” In the French media much was made of the fact that someone from such a modest background — his mother was a hairdresser, his late father a metal-shop teacher — could dupe so many of his bosses, many of them well-bred graduates of France’s best schools.
Mr. Kerviel’s conviction follows the dismissal last week of a U.S. shareholder lawsuit accusing the French bank of concealing losses linked to the trading scandal, as well as the extent of its exposure to subprime mortgages. Citing a U.S. Supreme Court decision in June, a U.S. court in New York ruled that the investors — including several pension funds — could not sue in the United States for losses linked to their investments in foreign companies.
It will be interesting to see if the judge reconsiders Kerveil’s sentence on appeal…
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