Police face deadline over French trader

28th January 2008, Comments 0 comments

Pierre Rochiccioli and Jean-Claude Pierrette pick up the pieces of the growing rogue trader saga: Jerome Kerviel : police must release or place him under formal investigation

   by Pierre Rochiccioli and Jean-Claude Pierrette
     PARIS, Jan 28, 2008 - French investigators were set to question
accused rogue trader Jerome Kerviel for a third day Monday before deciding
whether to release or place him under formal investigation over an alleged
seven-billion-dollar fraud at Societe Generale.
   The 31-year-old turned himself into police on Saturday, two days after
Societe Generale said it had lost a staggering 4.9 billion euros (7.15 billion
dollars) in the biggest fraud case in investment banking history.
   Prosecutors on Sunday extended Kerviel's detention for questioning for
another 24 hours, and must decide on Monday whether to release him or place
him under formal investigation. He denies any wrongdoing.
   Societe Generale has filed a criminal complaint against Kerviel, alleging
the use of falsified documents and unauthorised computer access to cover up
failed deals on share futures and hedges worth tens of billions of dollars.
   But the trader's lawyers hit back on Sunday, accusing the bank of trying to
"create a smokescreen" to cover up wider losses accumulated in the midst of
the US subprime mortgage crisis -- something the bank's chairman has denied.
   Kerviel's lawyers Elisabeth Meyer and Christian Charriere-Bournazel said
Sunday their client had "committed no dishonest act, did not siphon off a
single cent, and did not profit in any way."
   They said the bank was trying to "create a smokescreen which would divert
public attention from losses that were significantly more substantial than
those it accumulated in recent months."
   Jean-Michel Aldebert, head of the Paris prosecutor's office financial
division, said his investigation was "going well" and Kerviel was providing
"very interesting" facts.
   In a statement released on Sunday, Societe Generale said that the trader
had held positions worth about 50 billion euros (73 billion dollars) when he
was caught -- a figure well in excess of the bank's market value of 35.9
billion euros.
   It accuses him of "exceptional fraud" by circumventing controls designed to
monitor the risks in futures trading, which is essentially speculation -- or
betting -- on rises or falls on European stock markets.
   Quick action was taken to liquidate the deals concerned, limiting losses to
4.9 billion euros, the bank said.
   But Kerviel's lawyers said Societe Generale brought on the losses itself by
acting with needless haste.
   The head of the bank's finance and investment division, Jean-Pierre
Mustier, insisted during a telephone news conference Sunday that Kerviel acted
alone despite the colossal amount involved.
   "I cannot give you 100 percent assurances that there were no accomplices
but at this stage, there is nothing pointing to the fact that he had
accomplices, either internal or external," Mustier said.
   The case dwarfs that of Nick Leeson, who lost 1.5 billion dollars as a
Singapore-based trader at Barings, causing the collapse of the venerable
British bank in 1995.
   Investigators were seeking to establish the trader's motives, how he
allegedly managed to elude detection and whether he acted alone, said a source
close to the case.
   They were also examining whether he hacked into the bank's computer system.
   Police searched Societe Generale's headquarters near Paris on Friday,
seizing computer discs from Kerviel's office, and on Saturday raided his
apartment in the wealthy Paris suburb of Neuilly-sur-Seine.
   For the past few days, Kerviel had been staying with friends in the Paris
region. Police confirmed that he had not been on the run and had agreed to
cooperate with investigators.
   Kerviel joined Societe Generale's investment banking department in 2000 and
moved five years later from the back offices to the front office where he
began trading in futures.
   Societe Generale chairman and chief executive Daniel Bouton has described
Kerviel as a "crook, fraudster and terrorist" but colleagues quoted in the
press have portrayed him as a shy, unassuming young man.
   Kerviel's family from the small town of Pont L'Abbe in Brittany defended
the trader, with his aunt suggesting he is being made the scapegoat for
mismanagement or some wrongdoing at the bank.
   "Jerome is not capable of doing such a thing," said his aunt Sylviane Le
Goff in an interview with RTL radio.
   "You have to look around in his entourage, his superiors and management (to
find the culprits). Jerome is an honest and serious boy who is close to his
family," she said.
   Bouton has denied suggestions that the bank might have put losses from
other bad deals into the case, which has stunned international markets already
reeling from the US subprime mortgage crisis.
   Societe Generale has said it also lost two billion euros in subprime deals.
   "What happened at Societe Generale is certainly not a disaster that
resulted from our strategy. It is more like an accidental fire which destroys
a large factory at an industrial plant," Bouton said.


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