Societe Generale’s former trader Kerviel gets 3 years in jail

PARIS: Jerome Kerviel was sentenced to three years in prison and ordered to repay Societe Generale’s €4.9 billion ($6.8 billion) trading loss by a judge who said the former trader’s actions threatened the bank’s existence.

“By his deliberate actions, he put in peril the existence of the bank that employed 140,000 people, of which he was a part, and whose future was threatened,” Judge Dominique Pauthe said on Tuesday in finding Kerviel guilty of breach of trust and computer hacking.

The trading loss, announced Jan. 24, 2008, was the biggest ever and prompted then-chief executive officer Daniel Bouton to describe Kerviel as a “terrorist.” During a three-week trial in June, Kerviel admitted he lied to colleagues and exceeded trading limits, but argued his superiors knew of his actions.

Olivier Metzner, Kerviel’s lawyer, said he would appeal the ruling. Dressed in a dark suit, Kerviel sat in court following the decision. He will remain free during the appeal.

The former trader is “revolted that those that created him put all responsibility on him,” Metzner said, noting Kerviel wouldn’t comment directly. “Prison is unacceptable for a man who didn’t make a penny.” Pauthe said problems with Societe Generale’s computer controls and management’s encouragement of traders to speculate wasn’t enough to absolve Kerviel.

“The lack of vigilance by the bank in monitoring the only existing limits, acting as alert signs, hardly exempted Jerome Kerviel from his duty to inform his hierarchy of the reality of his excesses or to come back to the limits imposed,” Pauthe said.

France’s Banking Commission fined Societe Generale e4 million in 2008 for “serious shortcomings” in its risk controls. A report commissioned by the bank’s board faulted its internal monitors, saying in May 2008 Kerviel’s supervisors failed to “react in an appropriate manner to several alert signals” and missed at least 1,071 bogus trades.

Prosecutors had sought a four-year prison sentence and Kerviel received a five-year sentence, with two suspended. Jean Veil, the lawyer representing Societe Generale, said he was satisfied by the guilty verdict.

The Paris-based bank had requested repayment in full from Kerviel. Emmanuel Moyne, a lawyer at Linklaters, told On the Move with Francine Lacqua in an interview in Paris on Tuesday before the verdict that he expected the court would demand Kerviel pay Societe Generale “an amount equal to the loss.”

“He admitted he used fraudulent schemes, false e-mails, false statements, to conceal what he was doing,” Moyne said.

Kerviel was charged after he amassed 50 billion euros in unauthorised bets on futures, using faked hedges to make it appear the risk was minimised.

After joining Societe Generale in 2000, Kerviel rose to trader in 2005. He worked on the Delta One trading desk, where, according to the bank, his job was to arbitrage small price differences between contracts, not take bets on market directions. Societe Generale said a routine check exposed one of these bets on Jan. 18, 2008. That set in motion a three-day sell-off of his stakes as markets fell worldwide.

Kerviel, who was held in provisional detention at Paris’s La Sante prison for five weeks in 2008, admitted throughout the investigation and trial he had hidden his bets. Kerviel conceded at trial that accumulating positions worth 50 billion euros was “probably not” in his mandate. He also told police he wouldn’t be a scapegoat for the “blind eye” the bank turned.

Prosecutors argued Kerviel was driven to boost his bonus, while Kerviel said his sole motivation was to make money for France’s second largest bank. He was never accused of taking money for himself.

The two goals are linked, said Robert Falkner, a litigator with Reed Smith in London.

“It is the raison d’être for a trader to make money for the bank and for himself through the bonuses, which depend on the profits,” Falkner said.

“It is the nature of the job to have limits,” he said. The only reason to exceed them is “to increase profits both for the bank and for themselves in bonuses.”

At trial, Kerviel said taking unauthorized positions and covering them up was a common practice by Societe Generale traders. That assertion was contradicted by almost all the witnesses who testified.