Jerome Kerviel will focus on a tax credit obtained by Societe Generale SA to undermine the bank’s credibility in a bid to overturn a verdict finding he was solely responsible for the lender’s 4.9 billion-euro ($6.4 billion) trading loss.
Kerviel was sentenced in 2010 to three years in jail and ordered to repay Societe Generale for the full loss. His new lawyer, David Koubbi, says if nothing else, the 1.7 billion-euro tax credit obtained by the bank after the unauthorized trades were uncovered should be offset against what his client owes.
“Before we even get started, the amount of the loss was wrong,” Koubbi said in an interview. The “fable” of a 4.9 billion-euro loss “was just stated, it was never examined closely by anyone.”
Kerviel, now 35, was found guilty of breach of trust, forging documents and computer hacking. He amassed 50 billion euros in unauthorized positions concealed with faked hedges. The lower court judges rejected arguments that his superiors knew he exceeded his limits and the bank made a mistake by unwinding the bets over three days of falling markets in 2008.
“We expect a finding that there was no loss, a dismissal, and at least an apology,” Koubbi said from his office two blocks from the Arc de Triomphe in Paris. “To me, the victim is very clearly Jerome Kerviel.”
Koubbi, who previously represented Kerviel on defamation issues, is taking over the criminal case from Olivier Metzner, who left the legal team last month after a dispute over appellate strategy.
The 39-year-old lawyer represented Tristane Banon, a French writer who accused Dominique Strauss-Kahn, former chief of the International Monetary Fund, of attempted rape. Prosecutors last year rejected her request to open a probe, saying evidence of sexual assault from the 2003 incident couldn’t be pursued as the complaint was filed after the statute of limitations expired.
The lower court’s ruling in Kerviel case was based on well-established case law and will be difficult to challenge, said Emmanuel Moyne, a Paris lawyer with Linklaters LLP.
“It’s a fairly classic reasoning,” said Moyne, who wasn’t involved in the case. “What was spectacular was the amount of loss suffered, which explained the amount of damages awarded.”
The Paris appeals court has scheduled hearings in the case from June 4 to June 28. Societe Generale and its lawyer, Jean Veil, declined to comment on Kerviel’s defense.
Some of Koubbi’s arguments may sound familiar. Kerviel has long disputed the amount that the bank lost unwinding his bets, and argues France’s second-largest bank knew he was faking documents and entering false information into the computer system to disguise his positions.
Koubbi said he will present new arguments, new evidence and new witnesses, though he declined to detail who he would call. In addition, some evidence gathered during the investigation was handed over to Metzner less than a month before the first trial, and wasn’t fully examined, he said.
One of the main arguments will focus on the massive trading loss. The 4.9 billion-euro figure was the difference between the 6.38 billion euros the bank lost unwinding the positions and Kerviel’s 2007 trading profit of 1.47 billion euros.
The bank announced in 2008 that it received the tax credit for the loss, ultimately coming to 1.7 billion euros. The court should have reduced the amount Kerviel was ordered to pay to 3.2 billion euros, Koubbi said.
Letter to Senate
Koubbi has written to the Senate, questioning why the credit was awarded before a court had ruled on the matter and arguing a 4 million-euro fine by France’s bank regulator for risk control failures related to the loss disqualified the bank from receiving the credit.
Veil, the SocGen lawyer, dismissed the allegation when it was made by Metzner after the 2010 verdict, calling it “defamatory” to say the bank misled the court about the size of the loss.
Societe Generale said after the ruling it had “learned its lessons” from the episode and improved its risk controls. A report commissioned by the bank’s board also faulted its internal monitors, saying in May 2008 that Kerviel’s supervisors failed to “react in an appropriate manner to several alert signals” and missed at least 1,071 bogus trades.
Four months after the loss, Daniel Bouton ceded the chief executive post to his deputy, Frederic Oudea. Bouton stepped down as chairman the following year.
While four years have passed, the economic context is “the same, no one has learned anything from 2008” about risk and bank transparency, said Koubbi. As France goes to vote in the first round of presidential elections on April 22, Koubbi asked, “why haven’t candidates questioned why 1.7 billion euros was given as a gift to a bank contrary to the law?”