Regulators probe SocGen over rogue trader scandal
Will the SEC get in on the act?
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. ®
They are trying to make a scapegoat out of him and he isn't having any of it. I think, from all reports, if he goes down, he intends to take everyone else down with him.
BTW, rumours of overbooked Air France first class seats on flights to obscure countries/destinations are greatly exaggerated !! Many will be slumming it in business class !!
"Kerviel appears to have acted alone in sinking his employers into a huge hole."
I don't know anyone who still believes this, and haven't since about two days since the story broke. I understand that journalists don't have the freedom we do to call nonsense nonsense without proof, but in sentences like "dropped in a hole by rogue derivatives trader Jérôme Kerviel", a "supposedly" here and there wouldn't go amiss.
New hearing on Friday...
One magistrate want's him inside during the investigation, and he should be going in front of the beak tomorrow...
Probably will not go anywhere as he has answered all questions and requests... plus the fact that in loosing 4 odd billion euros, he actually had engaged over 50 billion euros... and I do have a problem with the bank not knowing where enough cash to purchase several medium sized african nations was...
In France, the papers are reporting that the bank's position was "do what you like, legit or not as long as it makes cash. But don't get caught".