Societe Generale Bank Fraud
Sherif Abdel Messih
MNGT 5000
Prof. John H. Webber
May 12th, 2008
Introduction:
“Societe Generale uncovers massive fraud by futures trader,[1]” reads the headline in the Herald Tribune, Thursday January 24th, 2008. This was without doubt one of the largest trading frauds to ever occur by a single person in the financial industry. How was this allowed to happen? Could have this been prevented? These are some questions that are needed to be asked when conducting the investigation. Furthermore, who is to be blamed for this calamity? I will attempt in this paper to further analyze the situation by finding out where the problems lied and how one can attempt to fix that.
Thursday morning the world woke up to the shocking news that French junior trader, Jerome Kerviel, 31, was being accused of making unauthorized transactions that ultimately cost the bank Euro 4.9 billion ($7.2 billion). He made huge bets with the bank’s money on buying positions in various indices because he felt the markets would rise in the first three months of 2008. Of course after the sub-prime melt down, markets tumbled, and many financial institutions had depleted capital after writing off bad debt. As a result many shareholders lost money in France’s second largest bank.
Jerome grew up in Brittany, Western France and attended the University of Lyon. He was hired by the bank in 2000 as a clerk who processed and recorded trades in the trading floor. Many felt he was lucky to be there in the first place because many of his colleagues were recruited from prestigious universities in France with advanced degrees. His superiors described him, “as a very junior trader, not a star,” and “more of a shy guy that an extrovert.[2]” As time passed by, Jerome worked his way up to the futures desk. There he invested the bank’s own money in European Indices by making bets on how the markets would perform in the future. His salary and annual...