Jérôme Kerviel, the French trader accused of perpetrating the biggest fraud in banking history, will be questioned intensively again today by French police as the scale of his ten-day spree on the financial markets emerged at the weekend.
Kerviel, a 31-year-old loner, gave himself up to the financial police on Saturday and, senior officials said, his interrogation has so far proven to be "extremely fruitful", yielding vital information about the scope of his operation which cost Société Générale £3.7bn.
It became clear that by the time SocGen "unwound" Kerviel’s position in equity derivatives trading, or betting on small future movements in European stock market indices, it was worth €50bn – far more than the entire worth of his employer, France’s second-biggest bank.
He reportedly lost €2bn in Germany alone after running up a huge account of 140,000 contracts in a move that proved to be his fatal flaw: the bank’s computer system finally revealed one of his so-called customers to be fictitious.
Working up to 14 hours a day, he had amassed this exposure in a mere 10 working days, hiding it from his superiors by hacking into the bank’s computer system and falsifying documents. Kerviel knew the computer system so well – he had helped operate it before becoming a trader and kept in constant touch with former colleagues in the back-office – that he could make it see what he wanted it to see. His job was to arbitrage – essentially to neutralize – the bank’s trading positions. By manipulating the computer system and using fictitious clients he was able to make it seem as if he was doing that when he was not. The bank, desperate to paint Kerviel as a rogue trader acting alone, said he had used his years of experience in processing market operations to escape all the controls it normally uses.
Kerviel was said by the head of the financial prosecutor’s office to be "fine", dispelling rumors of his depression since his alleged fraud came to light; he had since been in hiding, reportedly in his brother’s Paris flat.
SocGen has laid charges against him with the police for computer fraud, fraudulent falsification of bank records, and fraudulent use of these records. If found guilty, he could serve five years in prison.
The police seized hard disks and scores of documents at SocGen’s HQ in the prestigious La Défense business sector of the French capital and searched Kerviel’s one-room flat. They must establish whether he acted alone – or whether other bank officers were complicit. Jean-Pierre Mustier, head of investment banking, said that although the bank could not be 100% sure, he believed Kerviel had no accomplices.
Another question is why the bank’s management allegedly found out about the fraud on January 18, but then waited six days before alerting the authorities. Daniel Bouton, chief executive, said in an interview with Le Figaro at the weekend he had told both the relevant authorities – the Bank of France, the central bank, and AMF, the financial services authority – last Sunday. Bouton offered to resign last week but the SocGen board turned down his offer, asking him in his own words to "put the bank back on the rails".
The fraud comes at a bad time for Bouton, who is due to appear in court next month over charges of check fraud between France and Israel.
Desperate to avoid collateral damage to France’s new "modern and progressive" image, the president, Nicolas Sarkozy, said: "We have to put a stop to this financial system which is out of its mind and which has lost sight of its purpose."