Jérôme Kerviel

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 making a profit made the hierarchy turn a blind eye.^[6] Kerviel published a book in May 2010, L'engrenage: Mémoires d’un Trader (The gears: 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

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 separated in 2008.^[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

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

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. Philippe Baboulin is now COO of Kepler Capital Markets Geneva. Eric Cordelle has recently launched a single malt whisky craft distillery.

Legal repercussions

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 Kerviel 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]

On June, 7th, 2016, a social court condemned Société Générale for unlawful firing of Jérôme Kerviel.^[36] Société Générale said it would appeal.^[37]

Lemaire Consultants

Since Kerviel's release, he has been hired by Lemaire Consultants & Associates, an information systems and computer security consulting firm.^[38]

Pilgrimage

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".^[39]

See also

• Nick Leeson
• Toshihide Iguchi
• Kweku Adoboli

References

External links

• (French) Excerpts of police questioning
• Works by or about Jérôme Kerviel in libraries (WorldCat catalog)
• "Jérôme Kerviel collected news and commentary". The Guardian. 
  
• Fritz-Morgenthal, Sebastian/ Rafeld, Hagen: Breaking Down the Biggest Trading Fraud in the History of Banking, in: Risk Professional, June 2010, pp. 47–51.