Jérôme Kerviel is back in the news, giving
his first interview with an English language newspaper (the FT), which is
nicely timed with the release last week of his book, Trapped in a Spiral: Memoirs of a Trader.
(I guess I’ll have to buy this one too, as I have all of the other rogue trader
books in my library: see here,
here,
and here
– and, yes, I even have the Rogue
Trader movie).
Kerviel seems a bit jealous of Fabrice Tourre, the Goldman
Sachs employee at the center of the SEC’s
recent lawsuit and criminal investigation
against the firm, saying “Goldman Sachs supports him, while Société Générale
abandoned me.” Adds Kerviel:
I wrote the book to explain that my hierarchy knew what I was
doing … and to set the record straight. The bank has presented me as an
isolated case but other traders did the same thing – it was common practice on
the trading floor.
Joking aside, Kerviel raises an interesting point: when does a
firm calculate that it is in its best interest to support and defend an
employee’s actions, as opposed to distancing itself from her by claiming that
her actions were unauthorized?
No doubt more information will emerge during Kerviel’s trial
next month, but he is not wrong in his basic premise: organizations, such as
Société Générale, that find themselves confronted with massive rogue trading
losses often have willfully, or at least recklessly, disregarded the warning
signs of rising operational risk levels in pursuit of higher trading
profits. Easy parallels can be
drawn between Kerviel and other relevant rogue trading cases, including Nick
Leeson at Barings Bank, John Rusnak at Allied Irish Banks, Joseph Jett at Kidder
Peabody & Co., and a small cohort of rogue traders at National Australia
Bank.
As is common in rogue trading cases, there has so far been no
evidence of direct knowledge by superiors at Société Générale of Kerviel’s
overnight directional trades, which Kerviel hid through a variety of relatively
straightforward cover-up schemes. However, supervisors and bank management ignored
numerous warning signs regarding the size and scope of these trades,
leading to a reasonable inference that at least some supervisory personnel
likely turned a blind eye to Kerviel’s trading irregularities. Moreover, emails confirm that Kerviel’s
immediate superior was aware of, and acquiesced in, some early intra-day
unauthorized positions on equities and equity index futures.
Although much was made in the press of Kerviel’s
“sophisticated” cover-up scheme enabled by his intimate knowledge of the
back-office system, in reality the bulk of Kerviel’s cover up consisted of the
standard fare employed by most rogue traders: fake trades or other system
entries designed to hide unauthorized trading activity, backed up by lies
(which were never questioned by his supervisors or managers) and forged
documents. (Kerviel used three concealment mechanisms, which I document at
length here,
demonstrating that each is remarkably similar to techniques employed in prior
well-known rogue trading incidents).
I’ll leave off there for now, but I’m sure that some
newsworthy events will emerge from the trial.
Image source: FT
Related
Posts:
On
Warning Signs: You Can’t Get There From Here
Rogues
Versus Scapegoats
Kerviel Trial Opens to Fanfare
Société Générale: Back In The Saddle Again