Jérôme Kerviel

SocGen states that Kerviel was assigned to arbitrage discrepancies between equity derivatives and cash equity prices,[15] and "began creating the fictitious trades in late 2006 and early 2007, but that these transactions were relatively small. The fake trading increased in frequency, and in size".[16] Bank officials claim that throughout 2007, he had been trading profitably in anticipation of falling market prices; however, they have accused him of exceeding his authority to engage in unauthorized trades totaling as much as €49.9 billion, a figure far higher than the bank's total market capitalization. Kerviel tried to conceal the activity by creating losing trades intentionally so as to offset his early gains.[17] According to the BBC, Kerviel generated €1.4 billion in hidden profits at the beginning of 2008.[18] His employers say they uncovered unauthorized trading traced to Kerviel on 19 January 2008. SocGen then closed out these positions over three days of trading beginning 21 January 2008, a period after which the market experienced a large drop in equity indices, and losses attributed are estimated at €4.9 billion ($7 billion).

SocGen claimed Kerviel "had taken massive fraudulent directional positions in 2007 and 2008 far beyond his limited authority"[19] and that the trades involved European stock index futures.[19] Though SocGen officials say Kerviel apparently worked alone, skeptics question how unauthorized trading of this magnitude could go unnoticed. Kerviel's unassuming background and position have heightened the skepticism that he worked alone.[7] Some analysts suggest that unauthorised trading of this scale may have gone unnoticed initially due to the high volume in low-risk trades normally conducted by his department.[15] SocGen said that whenever the fake trades were questioned, Kerviel would describe it as a mistake then cancel the trade, after which he would replace that trade with another transaction using a different instrument to avoid detection. Kerviel's lawyers, Elisabeth Meyer and Christian Charrière-Bournazel, said that SocGen's managers "brought the loss on themselves"; accused them of wanting to "raise a smokescreen to divert public attention from far more substantial losses in the last few months"; and said that Kerviel had made the bank a profit of US$2 billion as of 31 December 2007.[16]

SocGen managers have described some of the means Kerviel employed to avoid the bank's internal controls and escape detection. Executive Chairman Daniel Bouton describes the pattern as like "a mutating virus",[20] in which hundreds of thousands of trades were hidden behind offsetting faked hedge trades. Officials say Kerviel was careful to close the trades in just two or three days, just before the trades' timed controls would trigger notice from the bank's internal control system, and Kerviel would then shift those older positions to newly initiated trades.[12] Experts have expressed skepticism of SocGen's account, saying that a pattern of closing out trades within the three-day cycle alleged could not be accomplished given the immense sums involved.[21]

Kerviel is not thought to have profited personally from the suspicious trades. Prosecutors say Kerviel has been cooperative with the investigation, and has told them his actions were also practiced by other traders in SocGen. Kerviel admits to exceeding his credit limits, but claims he was working to increase bank profits. He told authorities that the bank was happy with his previous year's performance, and was expecting to be paid a €300,000 bonus on a €60 million declared profit (approximately 0.5%).[22] Family members speaking out say SocGen was using Kerviel as a scapegoat to excuse its recent heavy losses.[21][12]

In answer to the rumors that Kerviel had fled Paris following the discovery of the unauthorised trading, on 24 January 2008 Kerviel's lawyer denied that he attempted to disappear and said he remained in Paris to face the accusations.[23] That same day, SocGen filed a lawsuit against "a 31-year-old person" for creating fraudulent documents, using forged documents and making attacks on an automated system, according to Clarisse Grillon, a spokeswoman for the Nanterre prosecutor. Le Figaro reported that in addition to the SocGen lawsuit, a group of shareholders filed a lawsuit for fraud, breach of trust and forgery.[24]

Around 25 January 2008, police raided the Paris headquarters of SocGen and Kerviel's apartment in the western suburb of Neuilly-sur-Seine[10] to seize his computer files.[25] On 26 January 2008, the Paris prosecutors' office stated that Kerviel "is not on the run. He will be questioned at the appropriate time, as soon as the police have analysed documents provided by Société Générale."[26] He was taken into police custody later that day.[27]

Kerviel's initial 24-hour detention was extended to 48 hours while French law enforcement questioned him about possible accomplices.[21] The investigation later widened to encompass his personal cell phone records, and to explore possible links to other individuals working at rival banks and private investment firms who may have been involved. The police were investigating whether Kerviel worked alone, and whether any investors outside of SocGen may have been tipped off in advance. Police were interested whether others were involved, either in the trades themselves, or whether they received notice of the bank's impending sell-off before the details of the scandal were publicly disclosed.[28]

Kerviel was formally charged on 28 January 2008 with abuse of confidence and illegal access to computers.[3] He was released from custody a short time after.[22] The charges filed carry a maximum three-year prison term. On 29 January 2008 investigating judges Renaud van Ruymbeke and Françoise Desset had rejected prosecutor Jean-Claude Marin's bid to charge Kerviel with the more serious crime of "attempted fraud" and refuse bail.[29]

Kerviel's trial began on 8 June 2010. On 5 October, he was found guilty and sentenced to five years of prison, with two years suspended, full restitution of the $6.7 billion which was lost, and a permanent ban from working in financial services.[30] Caroline Guillaumin, a spokeswoman for SocGen, stated that the restitution was "symbolic", and that the bank had no expectation that the sum would be paid.[31] Olivier Metzner, Kerviel's lawyer, described the sentence as "extraordinary" and said that Kerviel would appeal.[32] Kerviel's sentence was suspended until his appeal was completed.[30]

On 24 October 2012, a Paris appeals court upheld the October 2010 sentence to three years in prison with another two suspended, and ordered Kerviel to reimburse 4.9bn euros to SocGen for its loss.[33] In March 2014, a French high court upheld Kerviel's prison sentence but ruled he would not have to repay €4.9bn.[34]

On 7 June 2016, the Court of Appeal of Versailles condemned SocGen for their unlawful firing of Kerviel.[35][36] Société Générale said it would appeal.[37]