Nick Leeson no 2?

[melvin]

Rogue trader blamed for 4.9b euro fraud at Societe Generale
Posted: 24 January 2008 1753 hrs

PARIS : French banking giant Societe Generale said on Thursday a single trader who fooled his bosses carried out a massive 4.9 billion euro (7.15 billion dollar) fraud - one of the biggest scams in financial history.

Bank sources identified the trader as 31-year-old Jerome Kerviel, who had worked at Societe Generale in Paris since 2000 and had been on the trading desk since 2005. His whereabouts were unknown.

Trading in the bank's shares was temporarily suspended at the bank's request and stock closed 4.14 percent lower on news of the fraud and a 2.05 billion euro loss in the US sub-prime mortgage market.

The bank said the losses cut its 2007 profit to 600-800 million euros from 5.2 billion euros in 2006 and that it needed a capital increase of 5.5 billion euros to restore its balance sheet.

The fraud is another blow to investor confidence in a global banking sector already suffering from multi-billion dollar write-downs at some of the biggest lenders in Britain and the United States.

The case dwarfs that of Nick Leeson, the original British "rogue trader" who lost 1.5 billion dollars at Barings, causing the failure of the venerable British bank in 1995.

Societe Generale chief executive and chairman Daniel Bouton said the rogue trader had used "extremely sophisticated and varied techniques" to carry out "fraud of a considerable scope" and that he "had the intelligence to escape all control procedures."

The bank, which insisted he acted alone, said he took out "massive fraudulent directional positions in 2007 and 2008 beyond his limited authority."

But experts called into question the bank's version, saying it seemed unlikely that a trader would have managed to successfully hide such colossal losses.

"It seems a bit much to believe that for an entire year this would have gone undetected," said Elie Cohen, a professor of economics at the Paris Institute of Political Studies.

"One person alone cannot trigger such a catastrophe," commented Arnaud Riverain from the private firm Arkeon Finance, who said the bank's trading desk must have suffered from some "dysfunction."

Kerviel, who earned less than 100,000 euros per year, allegedly built up the huge losses dealing in derivatives trading.

"The transactions which involved the fraud were simple - taking a position on shares rising - but hidden using extremely sophisticated and varied techniques," said Bouton in a statement.

He said the trader had been suspended after confessing to the fraud and that legal action would be taken against him.

But asked about his whereabouts, Bouton responded: "I don't know where he is."

One of France's three biggest banks, Societe Generale filed a court complaint against the trader, accusing him of falsifying bank documents, use of falsified bank documents and unauthorised computer access.

The Paris prosecutor's office opened a preliminary investigation into the scandal while scores of shareholders lodged suit against the bank for fraud and misconduct.

Top executives were fired and Bouton, whose offer to resign was rejected, said both he and his deputy Philippe Citerne would forego their salaries for six months and bonuses for 2007.

French Prime Minister Francois Fillon said the fraud was "a serious matter but at the same time, it has nothing to do with the current situation on the global financial markets."

Finance Minister Christine Lagarde said she had asked the country's banking regulator to bring in tougher controls in response to the scandal.

Societe Generale said in a statement that the rogue trader had been carrying out what it called "vanilla futures hedging" on European equity markets - industry jargon for the most most basic kind of futures purchase.

It said he had an in-depth knowledge of the bank's control systems, and managed to cover his tracks "through a scheme of elaborate fictitious transactions."

These were discovered and investigated on January 19 and 20, it said.

A Societe Generale union source said it appeared that the trader had not acted for personal profit.

"The trader in question was experienced, knew how the bank worked. It seems he was playing the markets, but not for his own profit, and caused enormous losses," the source told AFP.

A human resources official described him as a "fragile" individual, "without particular genius" and facing family problems.

The rogue trader scandal is one of the biggest to hit the international finance industry.

Three years after Nick Leeson caused the meltdown of Britain's Barings bank, the Japanese Yasuo Hamanaka was jailed in 1998 for a decade of rogue trading which cost the Sumitomo Corporation of Japan 2.6 billion dollars.

And in 2002 John Rusnak, a trader employed by Allied Irish Bank, was jailed for seven-and-a-half-years by a US court for losing the company 750 million dollars through unauthorised currency trading.

Societe Generale's stock has lost 20 percent of its value since the start of the year and 50 percent since last May.

The Fitch credit ratings agency lowered its ranking for Societe Generale debt to AA- from AA and some analysts said the bank risked becoming a takeover target. - AFP/ls/de

:sweat::sweat::sweat:

 

[melvin]

SocGen humbled by rogue trader scandal

By Tim Hepher

PARIS (Reuters) - French bank Societe Generale faced tough questions on Friday over how it failed to spot the biggest rogue dealing fraud in history, in which a single young trader triggered a $7 billion loss under the noses of top executives.

The shaken bank organized a 5.5 billion euro ($8.06 billion) capital increase backed by its rivals, but analysts and newspapers questioned how long France's second largest bank would remain independent.

The future of bank chairman Daniel Bouton also looked uncertain following the combined blows of trading malpractice and substantial losses in the sub-prime crisis, for which the bank said it had taken a further 2.1 billion euro writedown.

Early editions of French newspapers did not make pleasant reading for SocGen bankers aiming to repair its reputation as home to some of the world's most complex rocket-science finance.

"General Irresponsibility," said left-wing Liberation above a picture of Bouton, in a play on the bank's name in French.

France's main financial daily, Les Echos, also led with a front-page picture of Bouton holding his hand in front of his mouth and commented that his position had been weakened.

"The shock which stupefied the financial world," Les Echos said in a headline, adding that the bank -- the euro zone's 7th largest by value -- was now seen as a potential takeover target.

Mystery surrounded the whereabouts of the trader who humbled one of France's oldest and most prestigious institutions.

Colleagues named him as Jerome Kerviel, 31, but SocGen declined to confirm this and said it did not know where he was.

A lawyer, Elisabeth Meyer, who said she was acting for the missing trader, said in a television interview he had not run away and would talk to French police if asked.

The Bank of France stressed SocGen was "solid" but the shock disclosure brought back memories of the collapse last decade of Britain's Barings bank because of rogue trader Nick Leeson.

France's top banker called SocGen's trader a "genius of fraud" but a senior board member at the bank called him "not one of our stars" -- leaving commentators and rivals perplexed as to whether France was looking for a whiz kid or a trading dimwit.

The bank said a junior employee on its derivatives trading desk earning less than 100,000 euros a year had carried out a sophisticated fraud, triggering 4.9 billion euros in losses as his disastrous trades were cancelled in wildly volatile markets.

RISK

SocGen made a profit of just over 5 billion euros in 2006 and has a market value of 35 billion euros, meaning it can overcome the crisis without sparking a meltdown in its stock or a run on the bank like that seen at Britain's Northern Rock.

But its credibility as an award-winning specialist in complex equity derivatives is on the line after it owned up to giant losses in one of the most straightforward instruments in global share markets -- stock index futures.

In a tacit recognition that supervision of the trader's books had gone wrong, SocGen said his immediate bosses had left the company while the trader was suspended pending dismissal.

France's prime minister said the crisis was isolated and nothing to do with the credit squeeze rocking global markets.

But it comes on top of jitters about credit losses spreading through the world's banking industry, compounded by persistent questions over the ability of banks to manage their risk.

"Societe Generale will probably not be the only case. We've seen this already with the big American banks who, by deregulating control systems, have allowed abuse," said Alain Crouzat, portfolio manager at Montsegur Finance in Paris.

"Societe Generale will certainly lose its independence after such an operation. We will ... have a redefinition of the banking world and France won't be an exception, despite what some have been saying," said Crouzat.

Bankers and analysts said the crisis could push SocGen into the arms of spurned suitor and arch-rival BNP Paribas.

BNP shares rose 7 percent on Thursday, while SocGen fell 4 percent. Its fall was cushioned by news that the emergency capital increase had already been underwritten by other banks stepping into the fray to keep a rival's balance sheet intact.

In Paris, ordinary banking customers and some of SocGen's 120,000 staff seemed bewildered by the crisis.

"What's shocking is that it's been engineered by one single person," said a Paris employee who gave only his first name, Romain. "There are a lot of procedures in place in this bank and its services. So for just one person to slip through those procedures -- I don't understand how that can happen."

 

[Sion]

Who is his Sifu? :bsmilie:

 

[melvin]

Who is his Sifu? :bsmilie:

Other Big Losers
1996 Sumitomo Corp $3.72 Billion by Yasuo Hamanaka
1995 Barings Bank $2.32 Billion by Nick Leeson
2002 Allied Irish Bank $1.96 Billion by John Rusnak
1995 Daiwa Bank $1.57 Billion by Toshihide Iguchi


Think he is made the scape goat, and his manager is not allowed to resign! :think: Now management also head big liao! Record breaking lose in history $10.4 Billion!

 

[redstone]

No one prosecuted?

 

[Malakite]

The sad part is, he didn't do it for personal profit....Just mistake after mistake aftr mistake, now the fellas on the run...

 

[melvin]

No one prosecuted?

Still under investigation!

 

[dreamzcape]

confirm nick leeson no.2...this guy no.1 liao

 

[conquer500]

but if other banks employ him as their consultants, nick is going to earn big bucks.

 

[melvin]

France's rogue trader freed after escaping fraud charges
Posted: 29 January 2008 0809 hrs

PARIS : French judges placed rogue trader Jerome Kerviel under formal investigation on Monday but stopped short of charging him with fraud and decided he could walk free from police custody.

Shares in Societe Generale, where Kerviel is alleged to have lost more than seven billion dollars, took a battering as allegations emerged that a board member was guilty of insider trading related to the scandal.

Kerviel was freed on bail after being placed under formal investigation for "breach of trust", "falsifying and using falsified documents," and "breaching IT procedures," said his lawyer Elisabeth Meyer.

Judges rejected a bid to charge Kerviel, accused by the French banking giant of losing 4.9 billion euros (7.15 billion dollars), with the more serious crimes of "gross breach of trust" and "attempted fraud."

"It's a great victory," Meyer said, "but it's only justice being done."

Kerviel, 31, who had been in police custody for more than 48 hours, walked free Monday after being told not to communicate with Societe Generale employees or to work in any financial services capacity until the case was resolved.

But no sooner had the 'rogue trader' handed over his passport -- which turned out to have expired anyway -- than prosecutors lodged an appeal against his release.

The launching of a formal investigation in France does not automatically mean that a trial will follow.

If found guilty of breach of trust, Kerviel would face a maximum sentence of three years in prison and a fine of 370,000 euros (186,500 dollars), less than half of what he might have faced if fraud charges had been laid against him.

President Nicolas Sarkozy had earlier warned there must be consequences for those responsible for the scandal, with chairman Daniel Bouton, whose offer of resignation was rejected last week, firmly in the line of fire.

"When there is an event of this nature, it cannot remain without consequences in terms of responsibility," Sarkozy said.

Societe Generale shares had already plunged seven percent to 68.67 euros in morning trading, its lowest level since mid-2004.

Bouton went to London in a bid to shore up investor support for a proposed 5.5 billion euro capital increase to cover the trading losses and two billion euros of losses in the US sub-prime market.

But about 100 Societe Generale shareholders filed suit for insider trading and manipulating share prices after the market regulator AMF revealed that a supervisory board member had sold shares worth 85.7 million euros (126 million dollars) on January 9.

Societe Generale's stock has now lost about 50 percent of its value since May last year and 22 percent since the close on January 9.

The suit by members of the Association of Small Shareholders (APPAC) targets American Robert A. Day and two foundations linked to him, said lawyer Frederik-Karel Canoy.

Prosecutor Jean-Claude Marin said Kerviel had admitted during two days of questioning that "he carried out a certain number of acts to conceal reckless positions on the markets", but did not try to profit personally from the financial deals.

"He wanted to be seen as an exceptional trader, an astute market player," said Marin, adding that he was attracted by the prospect of a 300,000 euro bonus.

"He went beyond what he was authorised to do on the market, it is true, but he wasn't trying to plunder the bank."

During questioning, Kerviel claimed that other traders had resorted to the same manoeuvres, although not on the same scale.

The trader turned himself in to police on Saturday. Since then, Kerviel's lawyers have accused the bank of trying to "create a smokescreen" to cover up wider losses from the US sub-prime mortgage crisis.

They argue Societe Generale brought the losses on itself by hastily dumping what were in essence stock market bets.

Kerviel had held positions worth about 50 billion euros (73 billion dollars) when irregularities were first detected -- well in excess of the bank's market value of 35.9 billion euros and its shareholder funds.

Within days, Societe Generale moved to unwind his deals, incurring losses of 4.9 billion euros.

According to Marin, Societe Generale challenged Kerviel several times about risky operations, and each time he produced fictitious documents to justify himself.

The trader had bought futures in three European indices -- the Eurostoxx, the DAX in Frankfurt and the FTSE in London -- effectively betting on the future direction of the stock market.

- AFP/ir

 

[Parka]

I find it super strange that these financial institution have people running the show solo without accountability.