Kerviel Faces Less Jail Time Than Madoff If Convicted

Former Societe Generale Trader Jerome Kerviel
Former Societe Generale trader Jerome Kerviel. Photographer: Antoine Antoniol/Bloomberg

If Jerome Kerviel is convicted next week of causing Societe Generale SA’s 4.9 billion-euro ($6.5 billion) loss, he won’t face the kind of sentences given to financial felons such as Bernard Madoff -- or even Nick Leeson.

French prosecutors are seeking a four-year sentence and, if convicted, he is unlikely to serve more than two years in jail, lawyers said. The sentencing rules in France contrast with those in the U.S. and U.K. where authorities are increasingly trying to make examples of white-collar criminals.

Kerviel, 33, “would face a substantial amount of jail time” in the U.S., said Ira Sorkin, the lawyer who represented Madoff last year when the con man was sentenced to 150 years in prison for running a Ponzi scheme that cost investors $20 billion. “The amount of money involved would kick this up. Ten to 20 years would not shock anyone.”

Kerviel’s unauthorized bets on futures, hidden with faked hedges to minimize the apparent risk, reached 50 billion euros before Societe Generale realized what the trader was doing and began unwinding his positions. At his June trial, Kerviel admitted to lying to his colleagues and exceeding his trading limits, but argued that his superiors were aware of his actions.

Judge Dominique Pauthe, who led the three-judge panel at the trial in Paris, will announce the verdict and any sentence on Oct. 5.


Kerviel’s defense struggled to rebut prosecution claims that he knew his actions were wrong and the former trader is likely to be found guilty of some charges by the court, said Stephane Bonifassi, a white-collar defense lawyer in Paris, who wasn’t involved in the case.

The defense “had problems with the fact he didn’t prove he had authorization” to make the trades, Bonifassi said. “He hid what he was doing.”

Kerviel lawyer Olivier Metzner declined to comment ahead of the verdict as did Societe Generale lawyer Jean Veil.

While prosecutors sought a four-year term, lawyers said it’s unlikely he will serve that much time in jail.

The three-judge panel will issue a verdict and set the punishment, which for a first-time offender such as Kerviel is typically less than the maximum under the criminal code. Prosecutors didn’t seek the maximum five years in prison they could have under the law.

In France, “there is the feeling that prison should be about allowing people to amend themselves,” Bonifassi said.

Leeson, Hamanaka

Even outside the U.S., financial crime is dealt with more harshly than in France. Nick Leeson was sentenced in 1995 to 6 1/2 years in a Singapore jail for the 862 million pounds ($1.36 billion) in trading losses that bought down Barings Plc. In Japan, Yasuo Hamanaka was sentenced to eight years in prison for hiding $2.6 billion in copper trading losses during the 1990s at Sumitomo Corp.

Leeson’s sentence was worse than his defense team hoped he’d get, said Stephen Pollard, his London-based lawyer. He agreed to extradition from Germany if prosecutors pursued two charges carrying an eight-year maximum. The eight months he spent in a German jail while the transfer was negotiated counted as time served so he ultimately served two-thirds of the sentence.

The number of years “is potentially a misleading comparator,” said Pollard. The sentence should be compared to the local maximum available for the charges, not sentences in other countries.

Allied Irish Banks

In another U.S. case, John Rusnak was sentenced to 7 1/2 years in 2003 for concealing $691 million in losses at Allied Irish Banks Plc. The penalty was part of a plea bargain reached before sentencing guidelines were made optional and has become the “over-under level” by which other white-collar jail terms are assessed, his lawyer, David Irwin, said.

Given the amount of money Societe Generale lost, a four-year sentence “is extremely light,” Irwin said. In the U.S., Kerviel’s sentence “would be a huge number, at least 20 years.”

In the U.K., the Financial Services Authority has been “quicker to sanction the institution rather than the individual,” said Robert Falkner, a litigator with Reed Smith. Still, London-based broker Jonathan Bunn was sentenced in July to 2 1/2 years for unauthorized trades losing 2.7 million pounds for Lewis Charles Securities Ltd.

‘Egregious’ Case

Falkner said Kerviel would receive between five and 10 years in Britain, because it was an “egregious” case.

In France, four years would be “a very harsh sentence,” Bonifassi said. “Even for horrendous crimes, murdering kids, killing cops, you look at 30 years jail time. No one ever dies in jail in France.”

There are several issues that differentiate French criminal sentences from the U.S., lawyers said.

The law sets a maximum jail term and otherwise judges impose penalties without regard to how their peers have sanctioned similar crimes. Their U.S. counterparts use guidelines set by Congress as a matrix to determine what punishment is appropriate.

A French “judge is free to choose the penalty he wants,” said Matthieu Bonduelle, a judge and secretary general of the Paris-based Magistrates’ Union. “The prosecution asks, recommends, but it’s just a request. The judge decides in light of the affair and the people in front of him.”

Early Release

Even if Kerviel is sentenced to the full four years prosecutors seek, the five weeks he was detained during the investigation would be deducted and he would be eligible for release after serving half his jail term.

“It’s all but certain he won’t do four years in prison,” Bonduelle said.

While early release isn’t uncommon elsewhere, prisoners can be freed much sooner in France. The U.S. requires federal prisoners serve 85 percent of their sentence.

Leeson served 3 1/2 years of his term; Hamanaka was in jail for seven of his eight-year sentence and Rusnak almost six of his 7 1/2-year term.

“Basically it’s a free ride in France,” Bonifassi said.

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