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Societe Generale Bank’s Former Futures Trader, Jerome Kerviel, Hit With a Heavy Sentence

7 October 2010 by Devon Chappell

jeromekerviel

Jerome Kerviel reacts to the harsh sentence handed down to him

Some people consider gambling and investing one and the same thing. Of course, there are peculiarities to each, and in some respects – depending on the casino game, type of investment and/or the amount of either – one could be more risky than the other – and certainly have more dire consequences if the investment/wager goes sour.

But of all the bets that have proven catastrophic, none has “waged” greater consequences than the financial trading of Jerome Kerviel. The former Societe Generale SA (a large and respected bank in France) futures index trader was recently handed down a severe sentence for his part in one of the biggest frauds in the history of…..err….let’s just say, money.

Sentenced to five years in prison (two of which were suspended), even more shocking was that Kerviel was ordered to pay back the bank (his former employer) a whopping 4.9 billion Euro’s ($6.7 billion) – a figure which marks the largest ever fraud by a siingle trader.

Now, you’re probably wondering what it was that Kerviel did, exactly. The exact charges that Kerviel was found guilty of were forgery, breach of trust and unauthorized computer use. Interestingly enought, Kerviel, himself, apparently did not financially benefit from the fraud, which essentially amounted to covering up bets.

This is why Kerviel’s lawyer, Olivier Metzner, as well as many people following the case, think that Kerviel is unfairly “paying for an entire system”. And perhaps he is. However, considering the seriousness of Kerviel’s actions, not to mention the rampant wave of rogue investing that helped put the entire global economy in a recession, perhaps a scapegoat is just what the Doctor ordered to let others know what could happen if they engage in activities that jeopardize one’s health and welfare, if yo uwill.

How serious was Jerome Kerviel’s actions, you ask? Well, let’s just say that Kerviel’s job was to make investments with Societe Generale SA’s money by hedging on European equity market indices, and that he was making bets up to 50 billion Euro’s – an amount worth more than the banks total market value. In essence, Kerviel was putting the entire company, along with its 140,000+ employees, at major risk, while the court ruling itself stated, “Kerviel’s actions, without a doubt, threatened the public order of the world economy”.

I suppose the larger question then is: Was this a case of one employee’s narrow-sighted mission to rise to the top or a cover-up imposed by Kerviel’s superiors? According to Kerviel and his lawyer, the bank and his bosses knew about his risky wagers, which in 2007, helped Societe Generale rack up1.4 billion in profits. So long as he was making the bank money, nobody cared…apparently.

Earning approximately $150,000 in annual salary, which isn’t that large a salary in the high stakes financial world to begin with, Kerviel maintains there was no personal financial gain as a result of his trading. He was merely doing his job. But when Kerviel’s trades started earning losses, that’s when the shit hit the fan. That’s when it became inevitable someone, whether one person or several persons, would simply have to be called out.

And it was the bank who called Jermoe Kerviel out. According to the court ruling, it was “obvious” none of Kerviel’s superiors would have allowed him to make such risky investments, and that the bank’s “reactivity” to the scandal helped contain the impact it had on the world economy – in a way, praising the bank for it’s role.

Yet, an internal report by the bank found that managers failed on seventy-four accounts to “uncover” what Kerviel was doing. Perhaps then, it’s more obvious the bank’s internal controls were lacking. According to a former Societe Generale Chairman, there were problems in monitoring Kerviel’s transactions, which were apparently offset with fictitious transactions so as not to draw attention. As for the banks CEO, Daniel Bouton, and Head of Investment Banking, Jean-Pierre Mustier, they didn’t have much to say on the matter. The two men both stepped down shortly following the unearthing of the scandal.

So now, only Jerome Kerviel, who, according to his lawyer, is “disgusted” with the decision (the photo above speaks one-thousand words), is now left to pay the bank back $6.7 billion, which based on his current monthly salary as a computer consultant of $3,150, will only take him 177, 536 years to pay off. Kerviel’s lawyer, Metzner, told TV cameras and reporters, “I hope you all will donate a Euro to Jerome Kerviel”. He went on to say that the court had judged the bank “was responsible for nothing, not responsible for the creature it had created.”

According to a Societe Generale spokeswoman, Caroline Guillaumin, the verdict is “an important ruling that acknowledges the moral and financial harm done to the bank and its staff”.

Jerome Kerviel is, not surprisingly, appealing the decision. He will remain free and not obligated to pay the bank back until the appeals process is complete.

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