Ultimate rogue trader Jérôme Kerviel will go to jail for three years, but may have less to pay as new trial ordered to reassess £4bn penalty for damages
The former Société Générale trader has always claimed that the French bank tacitly approved his risky trades
Wednesday 19 March 2014
France’s highest appeal court has confirmed a three-year jail sentence for the most spectacular rogue trader in financial history, Jérôme Kerviel.
The Cour de Cassation ordered a new trial, however, on the monumental damages of €4.9bn (£4bn) which Kerviel was ordered to pay to his former employer, Société Générale.
A new hearing at the Versailles appeal court later this year will be the “trial of Société Générale,” Kerviel’s lawyer, Patrice Spinosi, said. He hailed the decision of the Cour de Cassation to overturn the damages as a “first significant victory” for Kerviel.
The former trader, 37, has always claimed that the French bank tacitly approved his risky trades and exploited the collapse of his position in 2008 to “bury” its own losses in the US subprime debacle.
He is at present walking from Rome to Paris to “protest against the tyranny of financial markets” after briefly meeting the Pope at a public audience in the Vatican.
Kerviel has roughly two weeks to complete his journey before his prison sentence takes effect. He was said today to be “somewhere between Modena and Padua”.
Television images showed him wearing a red jacket and red backpack, walking quickly while trying to ignore the numerous members of the media following him. He made no statement.
The “affaire Kerviel” exploded in early 2008, at the beginning of the global financial crisis. Kerviel, a relatively junior trader, was found to have made monumental one-way trades on the direction of European stock markets.
In theory, he was supposed to make simultaneous “bets” on stock exchange futures going up and down to earn modest amounts of money on tiny margins between the two. Instead, he “faked” covering trades and hacked into computers to defuse the bank’s internal safeguards.
For almost two years, Kerviel made large gains. Yet in early 2008, the extent of his colossal exposure was discovered and SocGen unscrambled his positions, reporting a total loss of €4.9bn.
At his original trial in 2010, and at the appeal hearings in 2012, Kerviel and his lawyers admitted that he had “lost all sense of reality”.
But they called a string of witnesses who said that he was also a “victim” of a “greedy” world financial system which had itself lost touch with reality.
While Mr Kerviel was winning, they argued, the bank tacitly approved his dealings. When he got into trouble, he was made a scapegoat for the bank’s wider losses in the financial crisis. The trader had never attempted to embezzle his “winnings” when his trades were succeeding, they said.
His only obsession was to prove himself to be a master trader in the eyes of his employer.
The 2010 trial resulted in convictions for forgery, breach of trust and unauthorised computer use for covering up bets worth nearly €50bn, which was more than the market value of the entire bank.
It sentenced him to a five-year prison term (with two years suspended), which was upheld today, though the €4.9bn in damages will now be reviewed.
Jean Veil, SocGen’s lawyer, said the new trial will see the bank explain that it knew “from the moment that these events were discovered that there were errors in our system, which we’ve repaired and spent hundreds of millions to be able to change our control system”.
An internal report by the bank, however, found managers failed to follow up on 74 different alarms about Kerviel’s activities.
Kerviel’s superiors were questioned in the investigation, but none of them faced charges.
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