The French software developer turned rogue trader who brought French bank Société Générale (SocGen) to the verge of bankruptcy has been jailed for three years and fined €4.9bn ($6.7bn)
Jerome Kerviel used purloined login codes from his co-workers and forged emails to create fictitious accounts. He gambled billions from the fake accounts on the derivatives market, taking increasingly risky positions that went spectacularly wrong. The highly leveraged hedge fund trades between late 2007 and early 2008 exceeded SocGen's market value of €50bn. Unwinding these positions when they were discovered in early January 2008 coincided with a plunge in European stock markets and resulted in losses that ran into billions.
Kerviel, 33, used knowledge gained during five years of software development prior to his appointment as a trader on the bank's futures desk in 2005 to circumvent controls and offload jaw-dropping losses onto fictitious investors.
All this was done using rudimentary skills to carry out a low-tech hack that simply involved manipulating the Excel spreadsheet reports that provided trading updates to the bank's management. The episode was a prime example of a failure of trading controls, even more catastrophically exposed by the subsequent US sub-prime market collapse.
The fraud was exposed in January 2008, leading to Kerviel's arrest. SocGen unsurprisingly fired Kerviel soon after. Since then, he has gone back to his old job as a computer consultant, after a short spell of six weeks on remand. Defence lawyer Olivier Metzner said Kerviel has not gained financially from the fraud.
Kerviel was found guilty of breach of trust, forgery and computer hacking by a Paris court and sentenced to jail for five years, with two years suspended, at a hearing on Tuesday.
The court rejected Kerviel's defence that bank bosses were aware of his activities and did nothing until his early successes went spectacularly pear-shaped. He claimed other traders at SocGen were also taking hugely risky gambles. SocGen denied these allegations, maintaining that Kerviel acted alone and without authorisation.
Kerviel, who reportedly co-operated with investigators after his arrest, plans to appeal.
SocGen officials say the fine against Kerviel is purely symbolic and will not be enforced, which is just as well because French media reckon it would take him 120,000 years to repay the fine on an IT consultant's salary. ®