Feeds

Regulators probe SocGen over rogue trader scandal

Will the SEC get in on the act?

Boost IT visibility and business value

Société Générale may face a US inquiry on its handling of the rogue trader scandal that cost the company €4.9bn ($7.2bn).

The US Securities and Exchange Commission wants to see if the French bank violated US laws in the way it unwound its position after it was dropped in a hole by rogue derivatives trader Jérôme Kerviel.

Société Générale (SocGen) trades in the US and its shares are traded in the country as American Depositary Receipts (ADRs). That gives US regulators a potential interest. However, Kerviel's misjudged positions were restricted to the main European markets; the SEC's preliminary inquiry could conclude that the matter is best left to the French authorities, the Financial Times reports.

It has yet to be determined how and why Kerviel, a junior trader, secretly built up huge and risky positions in the derivatives market. The SocGen affair is the focus of five inquiries in France as well the possible SEC probe. Separately, the US attorney in Brooklyn is investigating the possibility that a leak of insider information prompted stock sales ahead of SocGen’s announcement of the disaster on 24 January.

Senior European Union politicians yesterday attacked SocGen for "abject carelessness" in failing to prevent the biggest rogue trader losses in financial history. Charlie McCreevy, the EU’s internal market commissioner, said SocGen had ignored warnings from Eurex, a leading derivatives exchange, over trades conducted by Kerviel.

A former inspector of trading operations at SocGen said his team was under-resourced, at least during his watch. "Inspectors do not have enough power in the bank, we are not given the time we need, or the means to check things out," Maxime Le Grand told AFP. SocGen strongly disputes this criticism.

Kerviel appears to have acted alone in sinking his employers into a huge hole. He joined the bank as a developer in 2000 working on the middle office systems that control how much a trader, or group of traders, can risk.

The role gave Kerviel the knowledge of how to manipulate the system when he became a junior trader in 2005. His role as a hedger involved covering the bank's exposure to large losses by taking positions opposite to those taken out by more senior traders. Trading limits in the order of tens of millions of dollars ought to have been applied, but Kerviel circumvented these controls.

Société Générale's own explanation of how the fraud took place, and the sequence of events leading up to its discovery, can be found here.

Kerviel admits to gaming the systems, but claims he was only working to increase bank profits. His lawyers say he's being used as a scapegoat for a wider range of problems at the bank, which has, they say, been hit particularly hard by America's sub-prime mortgage crisis.

Kerviel was charged with abuse of confidence and hacking offences on 28 January and released on bail. An investigating magistrate rejected prosecution attempts to charge him with fraud, CNN reports. ®

Maximizing your infrastructure through virtualization

More from The Register

next story
BBC goes offline in MASSIVE COCKUP: Stephen Fry partly muzzled
Auntie tight-lipped as major outage rolls on
iPad? More like iFAD: We reveal why Apple fell into IBM's arms
But never fear fanbois, you're still lapping up iPhones, Macs
Stick a 4K in them: Super high-res TVs are DONE
4,000 pixels is niche now... Don't say we didn't warn you
Sonos AXES support for Apple's iOS4 and 5
Want to use your iThing? You can't - it's too old
Philip K Dick 'Nazi alternate reality' story to be made into TV series
Amazon Studios, Ridley Scott firm to produce The Man in the High Castle
There's NOTHING on TV in Europe – American video DOMINATES
Even France's mega subsidies don't stop US content onslaught
You! Pirate! Stop pirating, or we shall admonish you politely. Repeatedly, if necessary
And we shall go about telling people you smell. No, not really
Too many IT conferences to cover? MICROSOFT to the RESCUE!
Yet more word of cuts emerges from Redmond
Joe Average isn't worth $10 a year to Mark Zuckerberg
The Social Network deflates the PC resurgence with mobile-only usage prediction
prev story

Whitepapers

Implementing global e-invoicing with guaranteed legal certainty
Explaining the role local tax compliance plays in successful supply chain management and e-business and how leading global brands are addressing this.
Consolidation: The Foundation for IT Business Transformation
In this whitepaper learn how effective consolidation of IT and business resources can enable multiple, meaningful business benefits.
Application security programs and practises
Follow a few strategies and your organization can gain the full benefits of open source and the cloud without compromising the security of your applications.
How modern custom applications can spur business growth
Learn how to create, deploy and manage custom applications without consuming or expanding the need for scarce, expensive IT resources.
Securing Web Applications Made Simple and Scalable
Learn how automated security testing can provide a simple and scalable way to protect your web applications.