Kerviel Clashes With SocGen Over Liability for $5.5 Billion Loss

Updated on
  • Civil trial set to determine what Kerviel owes the bank
  • ‘Kerviel owes nothing to SocGen,’ ex-trader’s lawyer says

Convicted rogue trader Jerome Kerviel returned to court Wednesday in a clash over his liability for Societe Generale SA’s record 4.9 billion-euro ($5.5 billion) loss, a hearing that started just days after he won an unfair-dismissal claim against the lender.

The civil trial -- scheduled to run through Friday -- will determine how much, if anything, Kerviel owes the bank for the loss that occurred eight years ago. The opening day’s debates focused on whether Societe Generale was aware he was covering up his trading activity.

“In hindsight, it’s easy to see through the fraud,” said Claire Dumas, the lender’s chief financial officer of retail banking in France. But at the time, Kerviel’s explanations and justifications “seemed pertinent.”

Jerome Kerviel

Photographer: Kenzo Tribouillard/AFP via Getty Images

Kerviel enters the latest trial buoyed by last week’s Paris employment tribunal ruling, which included stinging criticism for Societe Generale. While an order requiring him to repay the bank’s massive losses has been overturned, Kerviel’s claims that he wasn’t responsible for the scandal have fallen on deaf ears in French courts and several verdicts found him exclusively guilty for the trading loss.

Kerviel put in “considerable efforts” to bypass Societe Generale’s control systems, Dumas said. “His methods weren’t as crude as he pretends. I think I would also have been fooled,” she said. It’s “nonsensical” to say that the bank knowingly let Kerviel amass 50 billion euros in futures positions, masking the exposure with fake hedges.

His lawyer, David Koubbi, said he’s planning to reveal evidence that can’t be ignored by the Versailles court of appeals. He told the court he wants to share a recording he says raises fresh questions about whether the bank knew of Kerviel’s activities.

“The truth is that Jerome Kerviel owes nothing to Societe Generale,” Koubbi told reporters ahead of the trial.

Bogus Trades

Kerviel’s managers missed at least 1,071 bogus trades, a special committee of the bank’s board found eight years ago. His supervisors missed the level of his gains, cash flows, brokerage expenses and overlooked warnings from Eurex as the former trader amassed his positions.

"How can you explain the 50 billion, which represented one-and-a-half times the bank’s own resources?” Jean-Marie d’Huy, the assistant public prosecutor, asked Dumas. “How did such a high amount go unnoticed in a bank like Societe Generale?"

The failure was attributable partly to the “cleverness” of Kerviel’s cover-up, Dumas said, and partly a breakdown in the implementation of Societe Generale’s control systems, which were similar to those of comparable financial firms at the time.

“I’ll keep in mind that Eric Cordelle was duped day after day,” Koubbi said in reference to Kerviel’s direct boss for about eight months prior to the loss.

Dumas said that Cordelle “was taken advantage of rather easily.” The bank’s press office declined to comment.

Excessive Losses

Kerviel, for his part, said “it’s completely false” to say Cordelle was naive. He said fake trades to cover up excessive losses or gains were the norm at the bank.

Francois Martineau, a lawyer for Societe Generale, sought to discredit that assertion by pointing out that at the end of June 2007 Kerviel’s trading amounted to a loss of over 2 billion euros.

“Is it conceivable that a normal bank would know about such a loss and tolerate it?” Martineau asked.

Kerviel replied by saying his “hierarchy knew and accepted the risk.”

Aside from the civil trial in Versailles, the former trader has mounted a fresh legal challenge to his conviction after Nathalie Le Roy, the police officer who led Kerviel probes in 2008 and 2012, expressed concerns last year about how she was pressured to focus solely on evidence that would incriminate him.

Legal Limbo

His bid for a retrial of his criminal conviction is currently in limbo after judges at France’s court of review and reassessment said in March they want to wait for the separate lines of inquiry into the use of forged documents, witness subordination and obtaining a ruling under false pretenses to run their course.

The employment tribunal ruling issued last week could have an effect on other pending cases including the Versailles trial over damages.

While Societe Generale maintains Kerviel acted deceptively, the Paris tribunal said that the bank was well aware of the fake trades Kerviel used to cover excessive gains or losses and “tolerated” them. The bank called the ruling a “scandalous decision.”

The court also said Societe Generale knew about Kerviel exceeding his trading limits since at least April 2007 through several alerts and in November that year, the bank got a Eurex alert about Kerviel’s “substantial” positions on Allianz SE.