On October 24, a French appeals court threw the book at former junior trader Jérôme Kerviel who, in 2008, had been hung out to dry by his employer, French mega-bank Société Générale, for having—so alleged the bank—blown €4.9 billion of its money in just about no time. He’d risked up to €50 billion with trades the Banking Commission later called “simple,” far beyond his limit of €125 million. Kerviel never denied that. And he’d done so without its knowledge, the bank alleged, using trick and device to conceal these gigantic trades for years. The crux of the case. And a lie, according to Kerviel.
The French mainstream media have been solidly on the side of the bank on which they depend for funding, and which they can’t afford to antagonize. So they gloated when the court affirmed the 2010 conviction: a five-year prison sentence—three in the hoosegow and two suspended—and €4.9 billion in damages. But now, Kerviel and his lawyer, Me David Koubbi, showed up on France 2 TV and lambasted the proceedings that had been rigged, they claimed, from the outset.
Even the loss of €4.9 billion is uncertain. “No one knows anything,” Koubbi said. Two successive courts accepted Société Générale’s number without even a cursory glance from an outside expert. An “unprecedented dysfunction,” he said. But as new evidence piled up after the first trial, it became clear, Koubbi asserted, that “Société Générale had willfully aggravated the loss by adding the losses of other traders.”
It was early 2008. The financial crisis was wreaking havoc. Banks around the world were forced to write off their elegant instruments, and they dug up skeletons, and markets crashed—but Société Générale’s only sin was a junior rogue trader.
From 2005 through 2007, Kerviel made increasingly large trades, and as his profits rose, he became more confident. It was “intoxicating,” he said. At the end of every day, his direct supervisor came by and asked how much he’d made and encouraged him. And the hierarchy set his ever growing objectives based on profits from the prior year. In 2007, he made €55 million for the bank, which became the basis for his 2008 objective. He was so successful that the hierarchy suggested in an email that the bank “adopt the system Kerviel.”
In the trading room of about 100 traders, word of the magnitude and profits of his positions “circulated.” Société Générale traders in Asia called Kerviel the “fat one” (le gros) because of his positions. His boss in the trading room knew that he was risking up to €50 billion; emails between his supervisors and “control services” have emerged that discussed his outsized trades—one of them for €17 billion. But none of this was accepted by the court. “Incomprehensible,” Kerviel groaned.
On the plaintiff’s side, it was the opposite. Its “witnesses came and lied,” Koubbi said; and when challenged, the judge said that plaintiff’s witnesses had “a right to lie.” When Koubbi asked one of Kerviel’s supervisors what he knew about his trades, he replied: “I cannot answer that question because if I answered that question, I’d have to pay back the money I already received.” He’d signed a contract with the bank that prevented him from talking about the case. And the judge let it go.
During the initial investigation, much of the evidence had been sealed. But the appeals court authorized Kerviel and his new lawyer to see some of it, including a CD. On January 19, 2008, before the affair blew into the open, the bank had interviewed Kerviel for twelve hours to obtain a confession and recorded it without his knowledge. But only six hours remained on the CD, and only those six hours had been transcribed and introduced as evidence. When Koubbi hired experts to examine the CD, they discovered that segments of the interview had been cut out, that the evidence had in fact been “doctored.” [For how Kerviel struck out against the bank’s “manipulation of justice,” read…. David and Société Générale].
Other new elements have emerged as well. For example, witnesses said that they’d been asked by the bank to erase emails. And the trades that were attributed to Kerviel were not closed out how and when the bank said they were. Mystery after mystery.
Yet Kerviel was still optimistic. He’d appeal to France’s highest court, the Cour de Cassation. Hard to imagine, given the prior proceedings, that the sentence would be overturned. So one of the guests on the show asked where the moolah was. “Good question,” Koubbi said. “The court never asked that question.”
Enjoy reading WOLF STREET and want to support it? You can donate. I appreciate it immensely. Click on the beer and iced-tea mug to find out how:
Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.