# Ooh la la! French Bank defrauded of 5 Billion Euro



## Trembling Hand (24 January 2008)

Can you believe it? 5 Billion Euros missing!!

"Societe Generale said that it has already closed all the positions set up by the trader, who had used his experience working in the back office to hide his trades through fictitious transactions. "

From Bloomberg

http://www.bloomberg.com/apps/news?pid=20601087&sid=aOREuHY6NKBg&refer=home


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## 2020hindsight (24 January 2008)

The French Correction?


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## cuttlefish (24 January 2008)

surely over 10 years after the collapse of  barings bank due to a 'rogue trader' the banks have had enough time to put controls in place that would invalidate the 'rogue trader' excuse altogether.

The other thing to note is that the barings collapse was caused by a USD 1.4 billion dollar loss.  But this french banks trader lost over USD 7 billion and it also lost almost 3 billion USD on sub prime and its 'had to cut its profits to a measly $1 billion'. (ooh err).

And by the way they went to market to solve this problem and raised an easy $9 billion.

Are these guys the reason the EU central bank opened their lending window pretty much with no limits a little while back?

So this does really show there's a bit of money floating around the world at the moment - its easy these days - subprime - just raise capital - the CB's give it out don't you know - rogue trader - just go to your friendly local CB and get a little more.

Not like back in the Barings bank days when back in '95 Leeson busted the whole thing with a measly $1.4  billion trading loss. Clearly the gentleman was before his time - these day's he'd be encouraged to double up or nothing and if it doesn't work just trundle down to the CB for a bit more.


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## insider (24 January 2008)

2020hindsight said:


> The French Correction?




Funny


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## cuttlefish (24 January 2008)

interesting - I read the SMH article and based my post above on the info in there.  The bloomberg article linked earlier in the thread seems to present a more accurate view of the situation.

SMH article extract below:

_Societe Generale said today a single rogue trader carried out a massive 4.9 billion euro ($8.22 billion) fraud at the French banking giant.

Trading in the bank's shares was suspended on the Paris stock exchange after the revelation of the fraud along with a two-billion-euro loss stemming from the crisis in US subprime mortgage market.

The bank said the losses cut its 2007 profit to 600 million- to  800 million euros ($1.01 billion to $1.34 billion) from 5.2 billion ($8.72 billion) in 2006 and that it had carried out a 5.5 billion euro ($9.23 billion) capital increase because of the fraud "and in order to strengthen its capital base''._

Note the smh article claims the bank has already carried out a capital raising and also that the losses cut its profit - reading the bloomberg article they haven't actually raised the capital yet and I'm not sure the losses have been accounted in the 07 figures.

Let me guess, the press release was in French.


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## Kauri (24 January 2008)

cap raising will be a rights issue... in the future... I thunk..
Cheers
..........Kauri


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## Timmy (25 January 2008)

Wow ... this guy has raised the bar.


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## Kauri (25 January 2008)

A short squeeze on the way??... before..  ..  due to the Soc Gen losses with Banque de France Noyer stating that it took *three days* to unwind the fraudulent long position in the equity futures. Since Soc Gen found out on *Monday*, this correlates to the stock market *decline on Monday, Tuesday and Wednesday morning in Europe* and the *initial losses in the US session*. It still begs the question whether the Fed knew about the fraud when it cut rates. And also wnnrt ajjnx for the Dapb??
Xhiiers
.........Gabby


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## Timmy (25 January 2008)

Kauri said:


> A short squeeze on the way??... before..  ..  due to the Soc Gen losses with Banque de France Noyer stating that it took *three days* to unwind the fraudulent long position in the equity futures. Since Soc Gen found out on *Monday*, this correlates to the stock market *decline on Monday, Tuesday and Wednesday morning in Europe* and the *initial losses in the US session*. It still begs the question whether the Fed knew about the fraud when it cut rates. And also wnnrt ajjnx for the Dapb??
> Xhiiers
> .........Gabby




That is a really interesting point Kuari ... going to have think that through ... first thoughts are the market was already in a decline but wonder how the selling was managed ... if the liquidity was available would you have sold more than needed to square (i.e. get short) looking for a quick profit to offset some of the 5 or so bil. loss (say it like that, doesn't sound so much...).  US market was closed on Monday ... gee lot to think through, great post Kauri.


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## Judd (25 January 2008)

So at 100 Euro's per week, how long is it going to take young Jerome to pay this debt back?  Hope he is not thinking of retiring anytime soon.


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## bvbfan (25 January 2008)

http://www.ft.com/cms/s/0/c072c242-ca60-11dc-a960-000077b07658.html

SocGen said that Mr Kerviel was responsible for trading futures on European equity market indices, and had taken “massive fraudulent directional positions” in 2007 and 2008, many of which had made a profit in 2007. It was positions he had taken since the start of the year that caused the losses.


I take my hats of to SG for if they were the ones unwinding over the weekend when the US was closed they probably everted another LTCM.

If other funds had known they would have forced its collapse much like Amaranth in Natural Gas in 2006


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## wayneL (25 January 2008)

It's all to do with cross channel rivalry. The froggies had to outdo the Poms in something. Now the poms have to up the ante.

I hear there has been urgent interviews for a pasty faced screen jockey in The City that can disquise at least the equivalent of â‚¬6,000,000 in losses.

Shouldn't be a problem, I'm sure they've got at least that tucked away somewhere already.


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## rub92me (25 January 2008)

I'm not buying the story that a single trader could have hidden a fraud on this scale all by himself if the expected controls were in place for a trading operation this size. 
A trading operation should have a trading room, a middle office to monitor the intraday positions & risk and a back office to do the settlement & reconciliation; all strictly segregated. 
Each trader should have trading limits and information security controls should ensure that traders can't create bogus user ids to by-pass those limits. There's more heads to roll on this I think.


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## Agentm (25 January 2008)

il Ã©tait un homme stupide


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## petervan (25 January 2008)

Agree with you rub92me on everything except more heads to roll.The president of the bank offered his resignation but the board didn,t accept itso they are going to bunker in and stick together.Run a smear campaign against the trader saying how could he do something to one of Frances finest banks.They will destroy one individual to protect the banks reputation


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## Timmy (25 January 2008)

From an article:

"At the start of the afternoon, when his identity was revealed, he had 11 friends listed on the facebook.com social website.

That number later dropped to four." 

What a supportive little group...


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## Uncle Festivus (25 January 2008)

Mmmmm........ but who was on the other side of the trades.....nice little bonus!? The money is still going round, but now has prompted more to be 'found' in the system to cover SG's losses = inflation? Don't you love modern banking!


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## doctorj (25 January 2008)

If anyone is looking for a job, I hear SociÃ©tÃ© GÃ©nÃ©rale has a vacancy on their trading floor.


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## Buddy (25 January 2008)

Interesting to read about "fraudulent" activities:-
http://en.wikipedia.org/wiki/Fraudulent_conveyance

He may well have undertaken fraudulent activity but the bank and bank board HAVE TO take some responsibility in this. I agree with rubme and petervan, probably will not happen though. I just beggars belief that SocGen can so incompetent with their systems and checks and balances, that no one else knew, or it could not be detected along the way. They must be a total bunch of dumb f&*%ers, or this guy is super smart.  Probably a bit of both in reality.

Interesting that a number of investors are thinking of suing the bank. Of course it just might have gone the other way and the bank profited (apparently this trader has been quite profitable in previous years). I wonder if the bank would accuse him of fraudulent action in that situation and would the investors be thinking of suing.  I think not, Jan.

How ever this turns out, the Board and executives of this bank will have to face the guilleteen at some point. It just totally pisses me off that these types are paid such immoral sums of money to be so totally incompetent. :behead:


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## ithatheekret (25 January 2008)

What if the trades made a couple of $Billion ?   


I'm sure Mr. 10% would have been happy with the prices copper acheived .

Too bad he never got to reap them ..............


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## refined silver (25 January 2008)

rub92me said:


> I'm not buying the story that a single trader could have hidden a fraud on this scale all by himself if the expected controls were in place for a trading operation this size.
> A trading operation should have a trading room, a middle office to monitor the intraday positions & risk and a back office to do the settlement & reconciliation; all strictly segregated.
> Each trader should have trading limits and information security controls should ensure that traders can't create bogus user ids to by-pass those limits. There's more heads to roll on this I think.




A fall guy for derivative losses they didn't want to fess up to.


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## Trembling Hand (28 January 2008)

From Bloomberg,
"Societe Generale Says Trader Built Up Positions of EU50 Billion "

I am assuming thats equity exposure not margin but what ever that is a BIG position!! Thats about 900,000 contracts!!!


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## numbercruncher (28 January 2008)

Yes its absolutely massive and hard to believe really, seems to have got loads less media attention than Nick Leeson (think thats his name)

Its the equivalent of about half of all the gold and currency reserves held by France.


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## Whiskers (29 January 2008)

The plot thickens. The trader was first quizzed in Nov 07 and a director sold a million shares on Jan 9 and 10. Lawyers, angry shareholders and politicans and litigation coming from everywhere.

Seems to have caused a bit of a flap on Euro markets, but didn't seem to bother the US markets too much.



> *SocGen was warned about rogue trader last year*
> Mon Jan 28, 2008 1:46pm EST
> 
> PARIS (Reuters) - Exchange officials warned Societe Generale about rogue trader Jerome Kerviel's deals late last year, a Paris prosecutor said, piling pressure on the French bank to explain why the trades were not discovered earlier.
> ...


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## BIG BWACULL (29 January 2008)

As for who's to blame :dunno: 

*Bumbling Bankers*



> Rogue Trader Update
> 
> On Friday we talked about Jerome Kerviel, the rogue trader who rocked the markets last week. Mr. Kerviel’s employer, Societe Generale, blamed him for $7.2 billion worth of losses. But as it turns out, things aren’t so simple as that.
> 
> ...


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## BIG BWACULL (29 January 2008)

This from the australian today 



> SOCIETE Generale is facing legal action from shareholders claiming the bank is involved in insider dealing as it emerged that a non-executive director at the French bank sold off nearly 100 million euro ($167 million) worth of SocGen shares eight days before the discovery of "irregular trades" made by "rogue trader" Jerome Kerviel.



 :headshake:nono:

http://www.theaustralian.news.com.au/story/0,25197,23125230-20501,00.html


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## dalek (29 January 2008)

We are often treated to stories of wayward employees losing/defrauding large amounts of their employers cash, although not usually in this magnitude, but what about those that win ?? Surely they don't all lose it ?
Obviously they are not complete dills judging by the construct of their ploys to get hold of the money in the first place.
So, where are the winners ? 
We'll probably never know, but I suspect it's a really nice place.


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## nomore4s (29 January 2008)

The plot thickens.

Read somewhere today that Kerviel's lawyers have hit back saying he's being used as a scapegoat to cover up SocGens losses with subprime.

Sorry no link atm.


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## Timmy (29 January 2008)

nomore4s said:


> The plot thickens.
> 
> Read somewhere today that Kerviel's lawyers have hit back saying he's being used as a scapegoat to cover up SocGens losses with subprime.
> 
> Sorry no link atm.




you tease


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## doctorj (29 January 2008)

Google news is the place to go...
http://www.ft.com/cms/s/a0d5ca2c-cd28-11dc-9b2b-000077b07658.html
http://ap.google.com/article/ALeqM5g-Led3mqRdlkLzBZ413DQphV3uWAD8UF53082


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## drillinto (29 January 2008)

Further revelations dent SocGen’s reputation
By Financial Times(UK) reporters

Published: January 28 2008 

SociÃ©tÃ© GÃ©nÃ©rale’s dented reputation took a further battering on Monday as French investigators claimed that the Eurex derivatives exchange raised the alarm last year over trading by JÃ©rÃ´me Kerviel, the man accused of masterminding banking’s biggest rogue trading scandal.

The news makes the positions of Daniel Bouton, SocGen chairman, and Jean-Pierre Mustier, head of corporate and investment banking, look increasingly shaky. A board meeting on Wednesday could decide their fates.

Nicolas Sarkozy, the French president, on Monday signalled his desire for change at SocGen, saying: “In a system of high rewards...no one can escape responsibility when there is a problem.” 

Mr Bouton acknowledged that he would go if asked. A member of the bank’s board said Mr Bouton was kept on after last week’s revelation of a fraud that will cost SocGen â‚¬4.9bn ($7.2bn) in losses “to get through the crisis, and then he will be replaced”.

French banks, notably CrÃ©dit Agricole and BNP Paribas, are circling SocGen, gripped by a mixture of alarm and fascination at how the affair has made it vulnerable. However, any move is likely to be some months off. Mr Kerviel was on Monday preliminarily charged with breach of trust, falsifying documents and breaching IT controls. 

However, one of his lawyers, Christian CharriÃ¨re-Bournazel, said the investigating judges had rejected more serious charges of attempted fraud.

SocGen claimed Mr Kerviel took unauthorised positions on European futures markets for more than a year, leaving the bank with exposure of â‚¬50bn. The lender said he covered his tracks with fake hedging, which internal controls failed to detect. 

Investigators said Eurex became concerned at the positions the junior trader was taking as early as November 2007. Prosecutors failed to specify just who was alerted by Eurex, and the exchange refused to comment beyond saying that “controls had functioned properly”.

It is understood Bafin, the German regulator, on Monday sent confirmation of the Eurex alert to French market regulators, who are investigating how SocGen’s controls were breached. 

Reporting by Peggy Hollinger, John O’Doherty, Martin Arnold and Ben Hall in Paris; Peter Thal Larsen and David Oakley in London


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## Timmy (30 January 2008)

doctorj said:


> Google news is the place to go...
> http://www.ft.com/cms/s/a0d5ca2c-cd28-11dc-9b2b-000077b07658.html
> http://ap.google.com/article/ALeqM5g-Led3mqRdlkLzBZ413DQphV3uWAD8UF53082




Thanks doctorj.


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## Timmy (30 January 2008)

drillinto said:


> Mr Bouton acknowledged that he would go if asked.




Don't let the door hit you in the a*se on the way out.


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