Biggest Bank Fraud in History Suffered on French Bank
January 24, 2008 - (Tip Report) Paris
- Societe Generale Chairman Daniel Bouton described the massive
$7.15 billion loss as an act perpetrated by a "rogue trader"
who's motive at this time is unclear, having made no money personally.
Bouton told reporters that police had Jerome Kerviel in custody
and that he had confessed to perpetrating fraud against Societe
Generale Group. Earlier, Bouton hadn't released Kerviel's name
when Societe released a statement disclosing the loss.
Details have been slow in coming except to say that Kerviel, 30,
is a French citizen and had worked at Societe General since 2000.
Kerviel had been carrying out the fraudulent trading scheme since
2007 and knew enough about internal procedures to be able to bury
his trail - at least up to now. SocGen discovered the bank fraud
this weekend.
So how could someone hide $7.15 billion in losses - for two years
- and auditors not notice it. What? Seven BILLION to small an
amount?
Rumors are flying around Paris' financial community that an investigation
into SocGen itself may be launched to discover just what else
the bank has been up to that it couldn't notice billions missing
from its books.
SocGen said it has made a clean sweep of the heads of the rogue
trader's department at the bank asking all of them to resign.
Bouton himself reportedly offered his resignation but the Bank
refused.
Kerviel was responsible for basic futures hedging on European
equity market indexes, the bank said. That means he made bets
on how the markets would perform at a future date.
Until last year, the trader had been betting that markets would
fall, but then changed his position at the start of this year
to bet they would rise.
Every one in the financial community is baffled at how a lone
trader was able to get away with losing billions for two years
and the bank not notice.
The last trader to keelhaul a bank
for in excess of $1 billion was Barings Bank trader Nick Leeson, who in 1995 managed to conceal $1. 4 billion in losses. Kerviel's fraud is the largest in history.
