I tell my class that a crisis can spring from the most unexpected sources. You never see the lightning that strikes you. Now we focus on some of the most obvious risks, such as a sovereign debt default. As Howard Schneider reported in the Washington Post yesterday, “European banks are facing a reckoning over hundreds…
Jérôme Kerviel, the former Société Générale trader who lost EUR 4.9 billion in unauthorized trading in 2008 was sentenced to three years in prison today and ordered to repay the bank the entire amount of his losses. From the FT: By his deliberate actions, he put in peril the existence of the bank that employed…
The Jérôme Kerviel three-week trial ended in Paris on Friday, and that means that this post is my last in this series. Kerviel will have to wait until October 5, when the Court has said that it will announce its decision, to find out whether he’ll spend the next four years in jail and be…
In this series of posts on the Jérôme Kerviel trial, I’ve argued that, contrary to Société Générale’s contentions that they were duped by a genius, the bank itself is to blame for Kerviel’s massive losses. Soc Gen ignored major warning signs regarding the size and scope of Kerviel’s trades, and ultimately was complicit in the…
In my last post, it’s the culture, stupid, I noted that a review of the Société Générale scandal reveals a familiar pattern of organizational and departmental change that stressed trading and oversight systems, followed by a failure to respond to common red flags and warning signals. But, rather than increasing their vigilance regarding potential employee…
In testimony last week, Eric Cordelle, Jérôme Kerviel’s immediate supervisor at Société Générale confirmed a point about which I’ve previously blogged: the Delta One desk on which Jérôme Kerviel worked at Société Générale exceeded trading limits “quite frequently.” Cordelle claimed, however, “that this was usually for technical reasons and he had not known of a…
In my last post, kerviel’s fake trades: the anatomy of a cover-up, I began discussing the fake trades Kerviel employed to disguise his unauthorized losses (and gains). Contrary to Société Générale’s assertions that Kerviel’s sophisticated cover-up scheme, enabled by his intimate knowledge of the back-office system, prevented supervisors and bank management from detecting his unauthorized…
Regular ParetoCommons readers know that I’ve been doing a series of posts on the Jérôme Kerviel trial, which ends today in Paris. I wanted to talk a bit in this post about the testimony relating to Kerviel’s cover up scheme – the “fake trades.” According to the FT: The courtroom at the Palais de Justice…
As I noted in my last post, on warning signs: you can’t get there from here, a failure to inquire into unusual growth in profits, risk, or trading volume is not unique to Jerome Kerviel’s Société Générale experience. Instead, it is a common pattern across modern rogue trading scandals. For example, in February 2002, Allied…
In my last post, rogues versus scapegoats, I argued that, while Kerviel is hardly the “pawn for profit” his lawyers contend, Société Générale bears ultimate responsibility for failing to prevent Kerviel’s massive losses. The bank ignored major warning signs regarding the size and scope of Kerviel’s trades, leading to a reasonable inference that at least…
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