Rogue trader Kerviel gets three years and a $7bn bill

The trader who almost brought down SocGen in 2008 has been found guilty of breach of trust.

by Andrew Saunders
Last Updated: 05 Oct 2010
Jerome Kerviel, whose unauthorised trades cost the prestigious French bank Société Générale almost 5bn Euros, has been found guilty by a French court of breach of trust, forgery and, er, computer abuse.  He has been given a five year prison sentence with two years suspended, so faces a three year spell in jail.

As if that wasn’t enough, Kerviel has also been ordered to repay all the money his employer lost as a result of his activity, 4.9bn Euros or almost $7bn. Ouch. That’s an awful lot of looking down the back of the sofa…

So, what exactly did he do to earn such a coruscating verdict? Unauthorised trading – that is, making risky trades which his employers say they didn’t know about and would not have allowed if they had. His trades – amounting to 50bn Euros – were initially successful but the crash exposed them as hugely expensive. He effectively bet more than the bank was worth, apparently without any of his bosses knowing what he was up to, forging documents and abusing his employers’ computers on the way, according to today’s verdict, as he went to increasingly desperate lengths to cover his tracks.

His defence all along has centred on the claim that not only did his bosses know, but they tacitly approved of his activities, at least while they were profitable. The court did not agree, saying that he did not get even tacit approval and that the bank’s own organisational shortcomings did not exonerate him of individual responsibility.

Of course it’s hard to dispute that Kerviel was up to no good and, as with all wrongdoers, he deserves to be punished for it. But it’s also pretty clear that if SocGen’s management really didn’t know what was going on with Kerviel, they certainly ought to have done. It should not have been possible for a single trader to have threatened the existence of the entire bank.

In this respect it’s rather reminiscent of the Nick Leeson scandal of the 1990s, in which the activities of a single ‘star’ trader turned out to be disastrous and actually did bring down the bank – Barings. The case has also come to be seen as embodying the worst of late noughties excess, with Kerviel as the unwilling poster child.

Kerviel’s lawyer says he will appeal, calling the sentence ‘extraordinary’. Whatever happens to him personally, the bigger question remains – could it happen again? The lesson of history rather suggests that it could…

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