French trader probed over massive fraud
Updated on 24 January 2008
As banks reel from the global credit crunch, France's Société Générale has uncovered a massive £3.6 billion fraud involving a lone trader.
Paris-based trader Jerome Kerviel, named by sources within the bank, is in his 30s, earned less than £74,000 a year and has been working for SocGen since 2002.
Chairman Daniel Bouton said the financial giant will be taking legal action against him.
Kerviel was not "one of its stars", a SocGen source said. He is believed to have been dealing with futures contracts on European stockmarket indices.
Mr Bouton earlier said he and his deputy Philippe Citerne will give up their own salaries until June. The board has rejected an offer by the pair to resign.
As its shares were suspended, SocGen announced plans to raise £4.1 billion through a capital increase to shore up its balance sheet.
The losses are far greater than those involved in the infamous "rogue trader" case in 1995, when Nick Leeson caused the collapse of Barings bank after racking up losses of about £800 million.
Leeson said of the latest news to rock financial institutions: "The first thing that shocked me was not necessarily that it had happened again - I think rogue trading is probably a daily occurrence amongst the financial markets.
"The thing that really shocked me was the size of it.
"There are occasions when these sort of scandals will occur in different banks and in different financial institutions but I never for one minute thought that it would get to this degree of magnitude and this degree of loss."
He accused the banks of focussing on making money, at the expense of risk management.
"The money gets thrown at the front end of the business where the money is being made, at the traders and at the systems that they are trading with. They are looking at advancing and improving those all of the time.
"Not enough focus goes on those risk management areas, those compliance areas, those settlement areas, that can ultimately save them money.
"It's a very difficult thing to get across the line when you're trying to talk to a board, when you try to convince them that if you invest now in these systems and controls then it will ultimately repay you.
"What they're looking for is profit, profit now, and that tends to be where the money is directed.
"You're still looking at a situation where the systems and controls aren't good enough, the people in place to look after those systems and controls simply aren't good enough either."
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