The Strange Case of Jerome Kerviel

December 18th, 2013
in Op Ed, syndication

Written by

In ancient Rome, to pay some one to lie in court on one's behalf was considered acceptable, but for the person to fail to deliver was not: he could not expect to live long if he broke his word. I was reminded of this when reading about the case of Jerome Kerviel, although the parallel is not exact.

Kerviel, 36, the Societe General trader who was arrested in January, 2008, and when subsequently found guilty of fraud and abuse of confidence was sentenced to five years in prison (of which two suspended) and ordered to repay the bank for losses he caused to the tune of €4.9bn plus interest, is still fighting to clear his name.

Follow up:

His original conviction was confirmed on appeal in 2012, but he has appealed to the French supreme court of appeal (Cour du cassation), which is expected to rule within the next few months.

Kerviel has never denied that he took the totally extravagant and crazy positions, as the bank says he did. I did them, but under the control of my effect I did these things, but with their agreement, he said in a 9,000-word interview the December 11 issue the French weekly, Les Inrockuptibles (Inrocks).

The bank's case is and has been from the start that Kerviel alone was responsible for everything he did, and that he did it all by hiding his positions from the bank.

Kerviel is a lone ex-trader who is up against the entire French banking and political establishment, determined that the reputation of one of France's and the world's largest banks should not be besmirched. Realism suggests that he is very unlikely to walk away from the final appeal court as a free man.

But the more that emerges about the case, the more one suspects that Kerviel is telling the truth, and if he is telling the truth, SocGen must have economised with this commodity.

He makes many points in his interview that leave one wondering how the courts managed to reach the guilty verdicts. The point that leapt out at me was the fact that no one from Kerviel's department at SocGen could or would say anything in Kerviel's defence.

The reason is that they were all dismissed with seven years salary after signing a promise never to say anything to SocGen's detriment. If they did, the bank would demand the money back.

One of them was challenged by Kerviel's defence lawyer at last year's appeal hearing. The lawyer asked the witness whether had had been had been paid to stay silent . The witness said :

" If I replied to that question, I would have to repay all the money" .

Kerviel's comment to Inrocks was :

"I am no lawyer, but I would say that is subornation of witnesses. "

(Wikipedia's French pages define subornation under French law as:

"consisting of obtaining an untrue declaration, testimony or deposition, or an abstention from giving witness, by using 'promises, offers, gifts, pressure or menaces, manoeuvres or tricks , or by force of power, in the course of a judicial procedure .... ".

The offence carries a maximum penalty of three years in prison and a fine of up to €45,000.  (See here.)

Kerviel says that everything he and the other traders did while trading was recorded and everything was examined in minutest detail each day to keep track of the traders' positions and the bank's engagements by a staff of about 20, whose job this was. There was therefore no possibility that the bank did not know what he was doing.

This version of events was backed up by a former banker, Jacques Werren, who told Mediapart, a Paris investigative journalism website, in November:

" It is impossible for a financial business to claim that it could not see what was happening. Between the brokers, the accountants, the treasury (finance office), and the back office, at least 20 people follow the movements. Taking into account the size of the positions taken by Kerviel, and the variations in them....... it is evident that it was a position that was followed day by day. "

But, said Werren, he explained all this in a statement lasting an hour and a half to the appeal court, but no one asked any questions. "The court did not wish to go into all this," and the court 's ruling in effect refused to accept this version of why SocGen must have known what Kerviel was doing.

(For a report on Werren's statement, in French, to the court see this.)

Kerviel claims that one of his SocGen colleagues was in fact willing to tell the appeal court how things worked, an offer which cost him his job, but the judge, giving no explanation, said she did not wish to hear his evidence.

It failed to impress the court, either, that the financial regulators had been to SocGen in December, 2007, and checked that the trading departments were observing all the correct procedures. The regulators had no complaints.

The way in which SocGen paid for potential witnesses to keep quiet is not the only issue which raises questions about SocGen's conduct.

Kerviel was interrogated by senior managers of SocGen on January 18 and 19, 2008. Without his knowledge, the interrogation was taped. The tapes were seized by the police and were not made available to Kerviel's defence until after the 2012 appeal court ruling.

Kerviel's lawyer than sent the tapes for examination by "a judicial expert", who found that the tapes had been doctored. The interrogation lasted in all for eight hours and 45 minutes, but the tapes covered only six hours and 10 minutes. In other words, two hours and forty four minutes were missing.

(For more on this, in French, see here.)

Kerviel told Inrocks that what was missing were his elaborations when he was asked a question. He might say, " Yes, but it was like this.... ". The tape left the impression that he said " Yes ", and left out the rest of his reply, leaving the listener with the impression that he was was agreeing to the accusations made against him when this was not in fact the case.

But SocGen also sent the tapes for examination, and were told that the tapes were all right, not doctored at all. The missing time was covered by periodic silences.

Kerviel has counter-attacked SocGen by lodging complaints against the bank for

  1. " false evidence and usage of false evidence", which refers to the tapes of his; and
  2. fraudulently claiming that he cost the bank €4.9bn.

The second of these complaints relates to the fact that the Finance Ministry generously allowed the bank to claim a special write-off worth €1.7bn against its taxes and secondly that there were two other traders using the same positions as Kerviel. The bank has never explained how much of the loss was owing to the operations of these two traders. The bank's loss was maximum €3.2bn, says Kerviel.

Why he himself has been found guilty of fraud, Kerviel fails to understand. He did not make anything from his trading activities. All the money, whether gains or losses, concerned the bank. All he got was a salary plus bonus. In his best year, he told Inrocks, he reported €60,000 on his income tax return - a far cry from the millions that traders are said to earn.

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