PARIS (AP) — In what appears to be the largest trading fraud ever carried out by a single person, a young trader at French bank Societe Generale is accused of making unauthorized bets on stock markets that cost the bank nearly $7.2 billion but may not have netted him a cent.
The bank called the fraud “exceptional in its size and nature,” and said it apparently went undetected for more than a year by its own multilayered security systems.
It would place the trader, identified as 31-year-old Jerome Kerviel, atop the pantheon of rogue traders for a scheme from which bank executives said he apparently did not make a personal profit.
Societe Generale Chief Executive Daniel Bouton said Mr. Kerviel’s motivations were “totally irrational” but gave no further clues to his motive.
The bank, France’s second-largest, said yesterday it had learned of the fraud last weekend. The timing could not have been worse: The bank was forced to sell Mr. Kerviel’s contracts just as stock markets were plunging worldwide. It took the bank three days to unload them.
Societe Generale said the losses amounted to about $7.18 billion — one of history’s biggest banking frauds. It led to immediate calls for tighter regulation.
The fraud also raised comparisons to Nick Leeson, the trader who bankrupted British bank Barings in 1995 after he lost $1.38 billion on Asian futures markets, wiping out the bank’s cash reserves.
Mr. Leeson told the British Broadcasting Corp. yesterday that he was not shocked that such a fraud had happened again, but “the thing that really shocked me was the size of it.”
Mr. Bouton insisted Societe Generale is still financially sound, but the bank said it would need to raise about $8 billion in new capital, partly by selling shares in a rights offer underwritten by JPMorgan Chase & Co. and Morgan Stanley.
The company said it expects to post a net profit of $874 million to $1.16 billion for all of 2007 — even after the fraud and another $2.99 billion lost in the subprime mortgage crisis.
Mr. Kerviel, employed by the bank since 2000, had worked his way up from a supporting role in an office that monitors trades to a job on the more glamorous futures desk, where he invested the bank’s own money by hedging on European equity market indices — making bets on the future performance of the markets.
Described as a “brilliant” student by one of his former university teachers, he shocked executives with the complexity and scale of his trades. Mr. Bouton called the fraud “extraordinarily sophisticated.”
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