Jérôme Kerviel

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Jérôme Kerviel
Born (1977-01-11) 11 January 1977 (age 37)
Pont-l'Abbé, Brittany, France
Nationality France
Education Master's degree in Finance
Alma mater Lumière University Lyon 2
University of Nantes
Occupation Trader, consultant
Employer Société Générale (formerly)
Lemaire Consultants (currently)
Known for Rogue trading
Home town Pont-l'Abbé
Criminal charge
Abuse of confidence
illegal access to computers
Spouse(s) (separated)
Parents Charles (deceased)
Marie José

Jérôme Kerviel (French pronunciation: ​[ʒeʁom kɛʁvjɛl]; born 11 January 1977) is a French trader who was convicted in the 2008 Société Générale trading loss for breach of trust, forgery and unauthorized use of the bank's computers, resulting in losses valued at 4.9 billion.[1][2][3] Société Générale characterizes Kerviel as a rogue trader and claims Kerviel worked these trades alone and without its authorization. These assertions have been met with skepticism by some of Kerviel's former colleagues and acquaintances, as well as by some members of the news media.[4][5] Kerviel had told investigators that his trading behavior was widespread at the company and that getting a profit makes the hierarchy turn a blind eye.[6] Kerviel published a book in May 2010, L'engrenage: Mémoires d’un Trader (Downward spiral: Memoirs of a Trader), in which he alleges that his superiors knew of his trading activities, and that the practice was very common.

Early life[edit]

Jérôme Kerviel grew up in Pont-l'Abbé, Brittany.[7] His mother, Marie-Josée, is a retired hairdresser, and his father, Charles, who died in 2006, was a blacksmith.[8] Kerviel has an older brother, Olivier.[2] Kerviel is married, but he and his wife recently separated.[9]

He graduated in 2000 from University Lumière Lyon 2 with a Master of Finance specializing in organization and control of financial markets.[2] The university's financial program, which was initiated in the 1990s with the support of France's larger banks, was intended to prepare students for middle and back-office positions in the trading departments of financial institutions.[4] Prior to that he received a bachelor's degree in Finance from the University of Nantes.[10]

During an interview, one of his former lecturers at Lyon, Gisèle Reynaud, stated that "He was a student just like the others, a young man, and he didn't distinguish himself from the others."[11] In 2001, at the suggestion of Thierry Mavic, the Mayor of Pont l'Abbé, Kerviel stood for a seat on the local council with the Union for a Popular Movement party but was not elected.[12]

Société Générale[edit]

Kerviel joined the middle office of the bank Société Générale in the summer of 2000,[2] working in its compliance department.[13] In 2005 he was promoted to the bank's Delta One products team in Paris[13] where he was a junior trader.[14] Société Générale's Delta One business includes program trading, exchange-traded funds, swaps, index futures and quantitative trading. Christian Noyer, governor of the Bank of France, has described Kerviel as a "computer genius";[10] however, sources within Société Générale described Kerviel as "not a star".[15] Kerviel earned a bonus of 60,000 on top of a €74,000 salary in 2006, considered modest in terms of the salaries paid to traders in the financial markets. He had hoped for a €600,000 bonus for 2007 and would have received at least half that amount.[16]

Unauthorized trading[edit]

The bank states that Kerviel was assigned to arbitrage discrepancies between equity derivatives and cash equity prices,[17] and "began creating the fictitious trades in late 2006 and early 2007, but that these transactions were relatively small. The fake trading increased in frequency, and in size".[18]

Bank officials claim that throughout 2007, Kerviel had been trading profitably in anticipation of falling market prices; however, they have accused him of exceeding his authority to engage in unauthorized trades totaling as much as €49.9 billion, a figure far higher than the bank's total market capitalization. Bank officials claim that Kerviel tried to conceal the activity by creating losing trades intentionally so as to offset his early gains.[19] According to the BBC, Kerviel generated €1.4 billion in hidden profits at the beginning of 2008.[20] His employers say they uncovered unauthorized trading traced to Kerviel on 19 January 2008. The bank then closed out these positions over three days of trading beginning 21 January 2008, a period after which the market experienced a large drop in equity indices, and losses attributed are estimated at €4.9 billion ($7 billion).

The bank claimed Kerviel "had taken massive fraudulent directional positions in 2007 and 2008 far beyond his limited authority"[21] and that the trades involved European stock index futures.[21] Though bank officials say Kerviel apparently worked alone, skeptics question how unauthorized trading of this magnitude could go unnoticed. Kerviel's unassuming background and position have heightened the skepticism that he worked alone.[4] Some analysts suggest that unauthorised trading of this scale may have gone unnoticed initially due to the high volume in low-risk trades normally conducted by his department.[17] The bank said that whenever the fake trades were questioned, Kerviel would describe it as a mistake then cancel the trade, after which he would replace that trade with another transaction using a different instrument to avoid detection. Kerviel's lawyers, Elisabeth Meyer and Christian Charrière-Bournazel, said that the bank's managers "brought the loss on themselves"; accused the bank's management of wanting to "raise a smokescreen to divert public attention from far more substantial losses in the last few months"; and said that Kerviel had made the bank a profit of US$2 billion as of 31 December 2007.[18]

Managers for Société Générale have described some of the means Kerviel employed to avoid the bank's internal controls and escape detection. Its Executive Chairman Daniel Bouton describes the pattern as like "a mutating virus"[22] in which hundreds of thousands of trades were hidden behind offsetting faked hedge trades. Officials say Kerviel was careful to close the trades in just two or three days, just before the trades' timed controls would trigger notice from the bank's internal control system, and Kerviel would then shift those older positions to newly initiated trades.[14] City experts have expressed skepticism of the bank's account, saying that a pattern of closing out trades within the three day cycle alleged could not be accomplished given the immense sums involved.[5]

Kerviel is not thought to have profited personally from the suspicious trades. Prosecutors say Kerviel has been cooperative with the investigation, and has told them his actions were also practiced by other traders in the company. Kerviel admits to exceeding his credit limits, but claims he was working to increase bank profits. He told authorities that the bank was happy with his previous year's performance, and was expecting to be paid a €300,000 bonus on a €60 million declared profit (approximately 0.5%).[23] Family members speaking out say the bank is using Kerviel as a scapegoat to excuse its recent heavy losses.[5][14]

Kerviel was reporting to Eric Cordelle and Philippe Baboulin. [1] Philippe Baboulin is now COO of Kepler Capital Markets Geneva.[2] Eric Cordelle has recently launched a single malt whisky craft distillery. [3]

Legal repercussions[edit]

In answer to the rumors that Kerviel had fled Paris following the discovery of the unauthorised trading, on 24 January 2008 Kerviel's lawyer denied that he attempted to disappear and said he remained in Paris to face the accusations.[24]

Also on 24 January 2008, Société Générale filed a lawsuit against "a 31-year-old person" for creating fraudulent documents, using forged documents and making attacks on an automated system, according to Clarisse Grillon, a spokeswoman for the Nanterre prosecutor. Le Figaro reported that in addition to the Société Générale lawsuit, a group of shareholders filed a lawsuit for fraud, breach of trust and forgery.[25]

On the eve and afternoon of 25 January 2008, police raided the Paris headquarters of Société Générale and Kerviel's apartment in the western suburb of Neuilly-sur-Seine[12] to seize his computer files.[26] On 26 January 2008, the Paris prosecutors' office stated that Kerviel "is not on the run. He will be questioned at the appropriate time, as soon as the police have analysed documents provided by Société Générale."[27] He was taken into police custody later that day.[28]

Kerviel's initial 24-hour detention was extended to 48 hours while French law enforcement questioned him about possible accomplices.[5] The investigation later widened to encompass his personal cell phone records, and to explore possible links to other individuals working at rival banks and private investment firms who may be involved. The police were investigating whether he worked alone, and whether any investors outside of Société Générale may have been tipped off in advance. Police were interested whether others were involved either in the trades themselves or received notice of the bank's impending sell-off before the details of the scandal were publicly disclosed.[29]

Kerviel was formally charged on 28 January 2008 with abuse of confidence and illegal access to computers.[3] He was released from custody a short time after.[23] The charges filed carry a maximum three-year prison term. On 29 January 2008 investigating judges Renaud van Ruymbeke and Françoise Desset had rejected prosecutor Jean-Claude Marin's bid to charge Kerviel with the more serious crime of "attempted fraud" and refuse bail.[30]

His trial began on 8 June 2010. On 5 October 2010, he was found guilty and sentenced to five years of prison, with two years suspended, full restitution of the $6.7 billion which was lost, and a permanent ban from working in financial services.[31] Caroline Guillaumin, a spokeswoman for Société Générale, stated that the restitution was "symbolic", and that the bank had no expectation that the sum would be paid.[32] Olivier Metzner, Kerviel's lawyer, described the sentence as "extraordinary" and said that Kerviel would appeal.[33] Kerviel's sentence was suspended until his appeal is completed.[31]

On 24 October 2012, a Paris appeals court upheld the October 2010 sentence to three years in prison with another two suspended, and ordered to reimburse 4.9bn euros to Société Générale for its loss.[34]

In March 2014, a French high court upheld Kerviel's prison sentence but ruled he would not have to repay €4.9bn.[35]

Lemaire Consultants[edit]

Since Kerviel's release, he has been hired by Lemaire Consultants & Associates, an information systems and computer security consulting firm.[36]

Pilgrimage[edit]

While awaiting a ruling on his legal appeal and still protesting SocGen's stance in his case, Kerviel met with Pope Francis in Rome and undertook a pilgrimage from Rome to Paris against the "tyranny of the markets".[37]

See also[edit]

References[edit]

  1. ^ Clark, Nicola (5 October 2010). "Rogue Trader at Société Générale Gets Jail Term". New York Times. Retrieved 5 October 2010. 
  2. ^ a b c d Ben Martin, Nick Allen, Peter Allen and Henry Samuel (28 January 2008). "Jerome Kerviel was 'honest, working class'". London: Telegraph UK. Retrieved 29 January 2008. 
  3. ^ a b "Fears over rogue trader 'raised 3 months ago'". CNN. 29 January 2008. Retrieved 29 January 2008. 
  4. ^ a b c Carvajal, Doreen; Brothers, Caroline (26 January 2008). "‘Rogue Trader’ Is Remembered as Mr. Average". The New York Times. Retrieved 26 January 2008. 
  5. ^ a b c d Campbell, Matthew, and John Follain (27 January 2008). "Rogue trader Jerome Kerviel held for a further 24 hours". Paris, Pont l'Abbe: Times Online. Retrieved 27 January 2008. 
  6. ^ "Le trader livre sa version de l'affaire Société Générale". Le Monde, paper version. 29 January 2008. p. 1. 
  7. ^ Nelson D. Schwartz (25 January 2008). "A Spiral of Losses by a ‘Plain Vanilla’ Trader". New York Times. Retrieved 29 January 2008. 
  8. ^ Peter Allen (28 January 2008). "Phone records could be key to Kerviel case". London: Telegraph UK. Retrieved 28 January 2008. 
  9. ^ Kar-Gupta, Sudip (26 January 2008). "Jerome Kerviel: "genius" or mediocre backroom boy?". Reuters. Retrieved 27 January 2008. 
  10. ^ a b Nicola Clark, David Jolly (25 January 2008). "Fraud Costs French Bank $7.1 Billion". The New York Times. Retrieved 24 January 2008. 
  11. ^ "International Herald Tribune". Retrieved 25 January 2008. 
  12. ^ a b Adam Sage (26 January 2008). "Jerome Kerviel is not a Machiavellian genius. He’s just an average kind of guy". London: Times Online. Retrieved 28 January 2008. 
  13. ^ a b Rayner, Gordon; Allen, Peter (26 January 2008). "Profile: Rogue trader Jerome Kerviel". London: The Telegraph. Retrieved 28 January 2008. 
  14. ^ a b c "French police question rogue trader Kerviel". Reuters. National Post. 26 January 2008. Archived from the original on 28 January 2008. Retrieved 26 January 2008. 
  15. ^ Hosking, Patrick; Bremner, Charles; Sage, Adam (24 January 2008). "Jerome Kerviel named in €5bn bank trading fraud". London: Times Online. Retrieved 6 May 2010. 
  16. ^ Christine Seib (21 February 2008). "Societe Generale missed 75 warnings on trader Kerviel". London: The Times. Retrieved 22 February 2008. 
  17. ^ a b "SocGen postmortem". Financial Times. 25 January 2008. Retrieved 25 January 2008. 
  18. ^ a b ICOLA CLARK (28 January 2008). "Bank Outlines How Trader Hid His Activities". New York Times. Retrieved 28 January 2008. 
  19. ^ Souchard, Pierre-Antoine (26 January 2008). "Rogue French trader taken into custody". Paris. Associated Press. Archived from the original on 29 January 2008. Retrieved 26 January 2008. 
  20. ^ "Rogue trader began year in profit". BBC News. 30 January 2008. Retrieved 30 January 2008. 
  21. ^ a b Nicola Clark and David Jolly (25 January 2008). "French Bank Says Rogue Trader Lost $7 Billion". New York Times. Retrieved 25 January 2008. 
  22. ^ http://www.theregister.co.uk/2008/01/31/kerviel/
  23. ^ a b Jim Bittermann and Niki Cook (28 January 2008). "Accused billion-dollar rogue trader charged, freed". CNN. Archived from the original on 30 January 2008. Retrieved 28 January 2008. 
  24. ^ Viscusi, Gregory; Chassany, Anne-Sylvaine (24 January 2008). "Société Générale Reports 4.9 Billion EU Trading Loss". Bloomberg. Retrieved 24 January 2008. 
  25. ^ "Un extraordinaire talent de dissimulation" (in French). Le Figaro. 25 January 2008. Retrieved 26 January 2008. "Une deuxième plainte pour «escroquerie, abus de confiance et faux», a été déposée au nom d'un groupe d'actionnaires à Paris. ... Selon l'ampleur de l'escroquerie, Jérôme Kerviel risque de cinq ans à quinze ans de prison." 
  26. ^ "Police raid HQ of bank in French rogue trader scandal". AFP. 26 January 2008. Retrieved 26 January 2008. 
  27. ^ "SocGen trader not on the run says prosecutors". Reuters. 26 January 2008. Retrieved 28 January 2008. 
  28. ^ Chris Gourlay (26 January 2008). "Rogue trader taken into police custody". London: Times Online. Retrieved 28 January 2008. 
  29. ^ Peter Allen (28 January 2008). "Phone records could be key to Kerviel case". London: The Daily Telegraph. Retrieved 28 January 2008. 
  30. ^ "Jerome Kerviel charged over $8bn bank scam". Mercury. 29 January 2008. Retrieved 29 January 2008. [dead link]
  31. ^ a b "Kerviel's fine the size of 20 Airbus A380s". Reuters. 28 September 2010. Retrieved 5 October 2010. 
  32. ^ Clark, Nicola (5 October 2010). "Rogue Trader at Société Générale Gets 3 Years". The New York Times. 
  33. ^ "Kerviel lawyer says to appeal court verdict". Reuters. 5 October 2010. Retrieved 5 October 2010. 
  34. ^ Samual, Henry. "Societe Generale rogue trader Jerome Kerviel appeal dismissed". The Telegraph. Retrieved 24 October 2012. 
  35. ^ "French court upholds rogue trader Jérôme Kerviel's prison sentence". The Guardian. 19 March 2014. 
  36. ^ IHT.com Kerviel starts new job at computer consulting firm
  37. ^ Croucher, Shane, "Rogue Trader Jerome Kerviel on Bizarre Rome to Paris Pilgrimage Against 'Tyranny of Markets'", International Business Times, March 5, 2014. Retrieved 2014-03-05.

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