Litigation

Massive bank fraud found in France

By Tracy Coenen

Société Générale in France has reported a fraud of over US$10 billion, perpetrated by a trader in European stock futures. The trader accused of the fraud is Jérome Kerviel, who has been with the bank since 2000. He first worked in the back office, and then two years ago he was promoted to the trading desk.

It’s unclear how the fraud really happened. The bank says the trader bought huge long positions in ?plain vanilla futures hedging on European equity market indices? that were ?beyond his limited authority?.

That really doesn’t give us a clue to how a fraud occurred. Is the fraud simply the fact that he made purchases he wasn’t authorized to make, and now the bank is suffering losses because they were bad trades? Or did this man somehow profit personally from the scheme?

Société Générale says that the long positions were found and analyzed on January 19 and 20, and that all the positions have been liquidated. They also say that this loss doesn’t mean that they have a bad risk-management process or poor controls over employees.

How could the situation say anything else? Of course an employee exceeding his authority at this high of a level exposes weaknesses in the bank’s systems!

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Full post as published by The FRAUDfiles Blog on January 24, 2008 (boomark / email).