France's record-breaking fraudster gets jail and massive fine
Rogue French financier Jerome Kerviel was convicted of history’s biggest trading scandal, jailed for three years and ordered to pay a massive €4.9bn in damages today.
The ruling marked a huge victory for Societe Generale, one of France’s most established banks, which has worked to clean up its image and put in place tougher risk controls since the scandal broke in 2008.
The 33-year-old former futures index trader stood expressionless as the Paris court convicted him.
Kerviel was found guilty on charges of forgery, breach of trust and unauthorised computer use for covering up bets worth nearly €50bn between late 2007 and early 2008.
In the most stunning blow, the court ordered Kerviel to pay the bank back the €4.9bn that it lost unwinding his complex positions in January 2008 - a punishment he will certainly be unable to pay. He was also banned for life from working in the financial industry.
There were gasps and surprised looks when presiding judge Dominique Pauthe read out the damages to a packed courtroom.
Outside the court, defence lawyer Olivier Metzner called the financial penalty “unbelievable.”
“I have the feeling Jerome Kerviel is paying for an entire system,” he said, adding that his client had not benefited financially from the fraud.
Mr Metzner said Kerviel would appeal and will remain free pending that appeal. The damages are also suspended during the appeals process.
Based on his current salary of €2,300 a month as a computer consultant - it would take Kerviel 177,536 years to pay off the damages.
While trading for the bank, Kerviel took home a salary and bonus of less than €100,000 – a relatively modest sum in the financial world.
A Societe Generale spokeswoman called the verdict “an important ruling that acknowledges the moral and financial harm done to the bank and its staff.”
“The bank can now turn the page, pursue its strategy and continue to rebound,” she said.
Kerviel sat with his arms folded and his legs crossed during the first 45 minutes of the hour-long hearing, alone in the front row of the courtroom. He barely blinked as each guilty verdict was read out. He then stood for sentencing, frowning and silent.
“He is disgusted,” Mr Metzner said of Kerviel’s reaction to the ruling, adding the court had judged the bank “was responsible for nothing, not responsible for the creature that it had created.”
Mr Kerviel, a soft-spoken and debonair man from western Brittany, has gained considerable public appeal in France for his image of being a scapegoat for powerful corporate interests.
Kerviel maintained that the bank and his bosses tolerated his massive risk-taking as long as it made money, which he did at first, racking up €1.4bn in profits for Societe Generale in 2007.
In the end, the bank’s loss of €4.9bn stands as the largest-ever alleged fraud by a single trader, though the case has since been overshadowed by other crises in the financial world, from the fall of Lehman Brothers to Bernard L. Madoff’s multibillion-dollar Ponzi scheme.
During the proceedings, both sides admitted to mistakes but Kerviel insisted his bank superiors knew what he was doing. Societe Generale’s former chairman acknowledged there were problems in monitoring the trader’s work, and an internal report by the bank found managers failed to follow up on 74 different alarms about Kerviel’s activities.
In the ruling, the court said Kerviel acted without the bank’s knowledge and said it was “obvious” none of his bosses would have allowed him to bet sums exceeding the bank’s capital.
“Through his deliberate actions, he endangered the solvency of a bank that employed 140,000 people including himself, and whose future was seriously put at risk,” the ruling said.
The bank’s earnings crumpled in 2007 after taking into account the losses on Kerviel’s trades. Its profits rebounded in 2008 but were cut by more than half last year when the bank was hit by billions in new losses stemming from bad bets prior to the financial crisis. This year the bank’s earnings have bounced back, thanks to strong retail banking in its home market.
Employed by Societe Generale since 2000, Kerviel worked his way up from a supporting role in an office that monitors trades to a job on the futures desk where he invested the bank’s money by hedging on European equity market indices.
He was arrested in January 2008 and held for six weeks in Paris’ La Sante prison.
Kerviel’s fraud eclipsed that of previous lone traders.
In one infamous case, Nick Leeson, a British trader working in Singapore for Barings Bank, made unauthorised futures trades that lost more than $1bn and led to the venerable bank’s collapse in 1995. That case prompted banks worldwide to tighten their internal checks.
