More Kerviels may be on the prowl
More rogue traders may be at work, evading inspection and squandering depositors’ money.
By Bloomberg |
PARIS: The more people ask how Societe Generale’s (SocGen) Jerome Kerviel made bets that led to a euro 4.9 billion trading loss without his bosses’ knowledge, the more they are learning about other Kerviels who haunt trading floors from New York to London to Johannesburg to Stockholm.
Credit Agricole said in September an unauthorised proprietary trade at its investment bank in New York cost the company euro 250 million. The same month, Swedish regulators fined D Carnegie & Co, a Stockholm-based investment bank, for failing to exercise proper control over three traders who inflated portfolios by 630 million kronor.
“What happened with SocGen is of an extraordinary size, but it’s not extraordinary in nature,” said Angela Hayes, who heads the financial services group at law firm Lawrence Graham in London. “If there is more money to be made then people are more likely to indulge in that sort of behaviour.”
Inexperienced traders “don’t always know that it’s often better to take a short loss than to try to trade their way out,” said Bill Singer, a New York-based partner at the Stark & Stark law firm. “Eventually, the problems snowball.”
Singer, who was a regulatory lawyer for the former National Association of Securities Dealers, said two traders called him in the past year seeking advice on what to disclose to future employers after having been fired for unauthorised trades.
“Banks tend to have very strong controls to prevent people from stealing from the institution, but much weaker controls to prevent people from stealing for the institution,” said Mark Rasch, managing director at Baltimore-based FTI Consulting, which advises companies on security issues.
Credit Agricole said in September an unauthorised proprietary trade at its investment bank in New York cost the company euro 250 million. The same month, Swedish regulators fined D Carnegie & Co, a Stockholm-based investment bank, for failing to exercise proper control over three traders who inflated portfolios by 630 million kronor.
“What happened with SocGen is of an extraordinary size, but it’s not extraordinary in nature,” said Angela Hayes, who heads the financial services group at law firm Lawrence Graham in London. “If there is more money to be made then people are more likely to indulge in that sort of behaviour.”
Inexperienced traders “don’t always know that it’s often better to take a short loss than to try to trade their way out,” said Bill Singer, a New York-based partner at the Stark & Stark law firm. “Eventually, the problems snowball.”
Singer, who was a regulatory lawyer for the former National Association of Securities Dealers, said two traders called him in the past year seeking advice on what to disclose to future employers after having been fired for unauthorised trades.
“Banks tend to have very strong controls to prevent people from stealing from the institution, but much weaker controls to prevent people from stealing for the institution,” said Mark Rasch, managing director at Baltimore-based FTI Consulting, which advises companies on security issues.
ADVERTISEMENT
Hayes said she has represented three traders fired from different investment banks over the past 18 months. One was let go for compliance rules violations that came out during an insider trading case. Another was fired for altering the value of stock positions to improve his bonus. It’s difficult to collect statistics on proprietary trading because banks tend to fire and settle with offenders quietly without reporting the incidents to regulators, said Singer of Stark & Stark.Download
The Economic Times Business News App for the Latest News in Business, Sensex, Stock Market Updates & More.
The Economic Times Business News App for the Latest News in Business, Sensex, Stock Market Updates & More.
Download
The Economic Times News App for Quarterly Results, Latest News in ITR, Business, Share Market, Live Sensex News & More.
The Economic Times News App for Quarterly Results, Latest News in ITR, Business, Share Market, Live Sensex News & More.
ADVERTISEMENT
