Kerviel Judge Says Subprime Evidence Old, Wants Testimony

Kerviel’s Subprime Conspiracy Theory Aired in SocGen Loss Appeal
Jerome Kerviel is seeking to win a full dismissal of the case against him by showing the bank knew he took unhedged positions that exceeded limits, and therefore that he didn’t commit a breach of trust by amassing 50 billion euros in European stock index futures. Photographer: Balint Porneczi/Bloomberg

Evidence Jerome Kerviel presented to support claims Societe Generale SA let him amass 50 billion euros ($63 billion) in stock index futures trades so it could later hide losses on subprime loans shows “nothing new” to the Paris judge hearing the appeal against his 2010 conviction.

Judge Mireille Filippini, who last week demanded evidence from Kerviel’s lawyers to support allegations he was caught up in a conspiracy, said an unsigned letter and documents related to a Societe Generale account’s trades from January 2008 wasn’t sufficient.

The anonymous letter was “founded on rumors,” and the documents show “nothing new to the court,” Filippini said today. After she ordered Kerviel’s attorneys to disclose who wrote the letter, Kerviel’s lead lawyer David Koubbi identified the author as Philippe Hoube, who works at brokerage Newedge Group SA, where Kerviel passed many of his orders.

“I want to hear from this man,” Filippini said and scheduled a hearing for June 14 for Hoube and Maxime Kahn, who unwound Kerviel’s unauthorized trades, to testify.

Newedge didn’t immediately respond to a call for comment.

Kerviel, convicted in 2010 of breach of trust, forging documents and computer hacking in relation to a 4.9 billion-euro trading loss at Societe Generale, told the Paris court last week he’d heard of the conspiracy from a person who, he said, refused to testify in public. He’s appealing his conviction and sentence of three years in jail and repayment of the bank’s loss in full.

Unwinding Positions

Over 20 hours of hearings last week, when the court reviewed Kerviel’s career at the bank, he posited that the bank saw the opportunity in 2007 to use unwinding his positions in January 2008 to minimize the threat of the collapsing subprime market. Daniel Bouton, Societe Generale’s then-chief executive officer and chairman, delayed announcing a 2.05 billion-euro subprime write down for three days after learning of Kerviel’s unauthorized trades.

Filippini and Societe Generale’s lawyers questioned the logic of the theory about the bank’s “machinations,” asking Kerviel why, if the bank knew about his actions and wanted to minimize the impact of its subprime losses through him, they didn’t offset it with his 1.4 billion-euro profit for 2007.

“Why didn’t the bank take your 1.4 billion right away if it knew?” Filippini asked. “It would have been so thrilled to improve its record.”

Kerviel said he reported just 55 million euros in profit at the end of 2007, because he felt that was a more reasonable figure given the trading limits on his desk.

Filippini criticized a claim by Kerviel’s lawyers that someone tampered with recordings of conversations made when Kerviel was called into the bank regarding the unwinding of his trades. She said Koubbi and his staff hadn’t listened to all 8 hours of the recordings “before pronouncing it tampered with.”

Witnesses, including Kerviel’s former superiors are scheduled to begin testifying this week. Bouton, who left the bank in 2009, will also testify.

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