SocGen in disarray as judges throw out fraud charge against trader

[CHIMO]

Source: The Guardian

The Société Générale affair descended deeper into the mire last night as investigating judges threw out the most serious accusation, attempted fraud, put forward by prosecutors against the trader behind the €4.9bn losses, Jérôme Kerviel.

They released him under judicial supervision, or bail, after two days of police questioning, leading his lawyers to claim a substantial victory. The surprise threatened to undermine the bank's increasingly fragile defence that he had used ingeniously fraudulent devices, including hacking into colleagues' internet codes, to hide his gambling on equity derivatives trading markets.

Kerviel ran up an exposure of €50bn, costing France's second-largest bank a record loss in banking history as it unwound his positions last week. The prosecutor's office, which wanted to charge him with fraud, said it would appeal against the release. He has been placed under formal investigation for lesser allegations of breach of trust, computer abuse, and falsification. "There is no fraud," said Christian Charriere-Bournazel, one of Kerviel's two lawyers, accusing Daniel Bouton, SocGen's chief executive, of "throwing him to the dogs" and "holding him up for public vilification."

Earlier, a lawyer acting for 100 small shareholders sued the bank over insider trading and market manipulation, and minority investors accused it of issuing misleading information.



Read more: http://www.guardian.co.uk/business/2008/jan/29/europeanbanks.banking

---

Guess that there was no fraud. Must have been incompetence on the part of the bank? But that isn't unusual.

[Purveyor]

1. Could it be that he was actually doing the banks bidding on their instructions and they needed a

scapegoat?

Interesting, indeed!

[CHIMO]

2. At This Point

One has to wonder if he was being used. A good questions that should be answered.

[sendero]

6. I've been thinking that for a while..

... they are admitting he made no personal gains. He insists he was merely trying to do his job.

He might have been a "rogue trader" or he might have been a patsy.

[ursi]

3. they were using him as the fall guy for what is happening in the international market/economy

...and it has backfired!

[xchrom]

4. the information coming from this will be interesting to follow.

[Tansy_Gold]

5. Can someone please explain this?

I'm assuming from the reports about this incident that it is possible to LOSE money on "derivatives." Kerviel's actions are described as "bets," and "gambling." Doesn't that imply that someone wins . . . . and someone else loses? Is the winner the one who is more competent, and the loser less so, or is there an element (major or minor) of luck involved?

Or am I missing something here?


Tansy Gold, who often misses. . .. . the point

[sendero]

7. There are all kinds of "bets" in the markets..

... essentially any time you buy a stock you are "betting" it will go up in value.

With things like options, you can leverage your bet tremendously, giving you the opportunity for huge gains, but you can also lose every dime you invested.

I think this guy was betting on currencies, but I'm not positive. Currency trading is particularly vicious, currencies rise and fall for unfathomable reasons.

Really, IMHO most investing is a kind of betting, because nobody really knows the future :)

[muriel_volestrangler]

9. It was the French and German market indices

See http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/01/24/bcnguide.xml - " Société Générale fraud: A layman's guide".

[muriel_volestrangler]

8. Yes, it means someone wins, and someone loses

Whether it's due to skill, or luck, may be a subjective opinion.

Kerviel's job was to decrease risk for SocGen - to work out if all their dealing in individual stocks would leave them gaining or losing if the market as a whole rose or fell - and then to bet the other way, so that the bank wasn't risking money on the whole market, just on the individual stocks their analysts thought wew good or bad.

He seems to have decided that he could predict the market, and that he should start betting the bank's money according to his guesses about the market. It also seems he wasn't going to benefit personally from this (perhaps he thought he'd get a bonus, or a promotion, but I'm not sure - since it wasn't his proper job , it seems unlikely to me).

[Tansy_Gold]

10. If I understand you correctly, then he was SUPPOSED

to bet both sides of the game, or in other words -- correct me if I've got the wrong term because I'm neither a gambler nor an investor! -- hedge his (or the bank's) bet. Heads I win; tails I win but maybe not as much????

Next question of course is: Is this essentially what "hedge funds" do, or am I out in far left field again?


Tansy Gold, always eager to learn even if it means admitting she made a mistake

[muriel_volestrangler]

11. I think, from the Telegraph article I linked above,

that others in the bank would bet according to what they saw as good or bad companies, and he should have, as you say, hedged the bank's bets. I guess the idea was that if all the banks' experts in their own areas felt optimistic about their own specialities, they didn't want to suddenly found they'd risked everything at once, in case some market-wide problem happened.

Yes, I think that was what hedge funds did, originally, at least - found a way to 'hedge' bets on the market so that the investors would make some money whatever happens to the market overall - which should imply that they'd not make as much money as the market when it goes up quickly. But these days, I get the feeling that a 'hedge fund' often takes extra risks, because they deal in these weird trades and contracts (simple ownership of shares I can understand, but options, futures and derivatives are all beyond me) and think they are smarter than the rest of the traders.

I am a complete amateur at this, so if anyone needs to correct me, please do.

[Venus Dog]

12. This is probably the reason charges were dropped

Kerviel has named names of co-conspirators --- which means he was not the "lone nut trader" the bank and French gov't were leading the public to believe.

<i>At the weekend the bank was forced to concede Kerviel may not have been acting alone and investigators are hunting co-conspirators after he allegedly named names.</i>

http://www.thisislondon.co.uk/news/article-23434297-details/I'll+name+names+says+rogue+trader+as+bank+warns:+He+had+a+gang/article.do

And also his lawyers accused the bank of using him as a patsy to cover up subprime losses.

There is interesting info on SocGen in Wikipedia including it's cozy relationship with Cedel (aka Clearstream), a world-wide clearing house for banks. Clearstream has been accused of money laundering and tax evasion by using unpublished accounts. Among those having had and/or have unpublished accounts at Cedel are SocGen, BCCI, Carlyle Group, Banco Ambrosiano, Credit Lyonnaise and Bahrain International Bank (possibly connected to bin Laden), as well as others, including the October Surprise transfer of money for Iranian hostages, Columbian drug lords, a Russian oligarch, etc.

This whole thing smells of BCCI - it never stopped -- and all the usual suspects still present.

Here's the link to Society Generale
http://en.wikipedia.org/wiki/Soci%C3%A9t%C3%A9_G%C3%A9n%C3%A9rale

and

Clearstream
http://en.wikipedia.org/wiki/Clearstream