The crisis at Société Générale deepened yesterday when Jérôme Kerviel, the alleged perpetrator of the biggest rogue trading scandal in financial history, was sent to prison for the duration of the investigation and a second trader was being interrogated by police.
SocGen has consistently claimed that Kerviel acted alone and was solely responsible for operations that caused the bank a €4.82bn (£3.6bn) loss, but lawyers confirmed that police were questioning a broker who executed orders on behalf of Kerviel. The two ran up an exposure of €50bn. The new arrest raised questions over whether Kerviel acted in collaboration with others.
Kerviel, who had been released on bail on preliminary charges of forgery and computer hacking, was taken into custody last night while investigating judges carried out a potentially long and complex inquiry. The Paris appeals court upheld a plea from the state prosecutor that Kerviel should be detained because of the risk of him communicating with witnesses or contacting possible accomplices.
The second trader being questioned was named by his lawyer’s office as Moussa Bakir, 32, an employee of Fimat, the financial services company that was Société Générale’s brokerage arm. The firm, whose offices were raided on Thursday, is now known as Newedge following a merger with Calyon Financial two days before news of SocGen’s losses broke.
It later emerged that Fimat was at the center of inquiries launched after Eurex, the derivatives exchange, alerted SocGen to suspicious trades by Kerviel as early as November 7 last year.
Sources said Kerviel used the Fimat name in his cover-up of allegedly fictitious trades. Eurex detected that a supposed Fimat trade was, in fact, initiated by Kerviel from SocGen’s Delta One proprietary trading desk. Kerviel subsequently explained away his use of Fimat’s London office, although Eurex issued another alert on November 20.
Bakir is being questioned by the brigade financière in Paris, which extended his detention for another 24 hours yesterday. A source said: "They want to know whether this guy was aware of what Kerviel was doing in terms of creating false trades on behalf of Fimat to cover up his positions."
SocGen insisted that Fimat/Newedge, although owned by the bank, is an independent brokerage and that this latest revelation buttressed its central argument that Kerviel had used extremely sophisticated techniques to escape its internal controls – possibly using someone else.
There has been speculation that fraud charges could now be levied against Kerviel. He has not been charged with fraud, though he has admitted carrying out fictitious operations to conceal the sheer scale of his trading at the bank.
The French daily Le Monde said police suspected that the second trader was aware of Kerviel’s activities. It said new evidence uncovered by SocGen’s investigation was handed to judges. This included a message sent by Bakir to Kerviel over the bank’s internal instant-messenger computer system. The newspaper said the note, sent on November 30, read: "You have done nothing illegal in terms of the law."
La Lettre de l’Expansion reported this week that Fimat/Newedge did not bill Kerviel its usual fee on at least one trade and never informed anyone at SocGen’s investment bank that a single trader was passing such large orders.
Bakir is believed to live in the Paris area. Media reported his social networking page said he had taken a PhD in 2001 in Aix-en-Provence. His lawyer, Jean-David Scemama, said he was "surprised" by the timing of his client’s questioning tallying with Kerviel’s hearing and detention. But he was "confident" regarding his client’s situation, saying Kerviel was just one of the broker’s clients.
Jean Veil, SocGen’s lawyer, said Kerviel was detained because of discrepancies in his testimony.
"Mr Kerviel’s statements, and the separation between these statements and the truth, inevitably made the appeals court amenable to the arguments of the prosecutor’s office," he said.
Kerviel has insisted he acted alone. He told prosecutors on January 26 and 27 that the bank had been "complacent" about his trades. "As long as we were winning and it wasn’t too visible, things worked out, no one said anything," he said.
The SocGen board, meanwhile, meets tomorrow to finalize the terms of its €5.5bn rights issue to bolster the bank’s capital base after the €4.82bn loss and a €2.05bn loss caused by sub-prime write downs.