Tuesday, June 15, 2010

Rogue-trading trial starts today

by Angela Doland - Jun. 8, 2010 12:00 AM
Associated Press

PARIS - Jerome Kerviel says he's living the simple life these days. The former French trader accused of gambling away billions of his bank's money has a job in the suburbs making $2,700 a month. He doesn't take vacations. His adrenaline-fueled life on the trading floor seems far away.

Two-and-a-half years after the scandal broke, Kerviel goes on trial in Paris today, accused by Societe Generale SA of risking tens of billions of euros of its money in trades that led to more than $7 billion in losses once the bank unwound his positions in January 2008.

At the time, it was considered history's biggest trading fraud, but it was soon dwarfed by a global financial crisis, the fall of Lehman Brothers and the Bernard Madoff multibillion-dollar Ponzi scheme.

Kerviel, accused of being a rogue trader, already has hammered out his defense in a book and interviews with French media, casting himself as an everyman who got carried away, a scapegoat for the bank, the victim of an out-of-control banking system.

It's a tactic that seems crafted to tap popular discontent at a time of ongoing financial scandals and economic turmoil. His case destabilized the banking sector, already on the verge of the 2008 meltdown, and heightened pressure for better financial regulation, still high on today's agenda for governments worldwide.

Helping Kerviel's strategy is the 33-year-old's standing as an antihero in France. The son of a metalworker and a hairdresser, Kerviel grew up in the provinces and lacked the snooty education usually required for coveted trading jobs, yet he nonetheless managed to humiliate a banking powerhouse and expose the weakness of its controls.

A few bank executives resigned in the scandal's aftermath, including longtime Chairman Daniel Bouton. Kerviel's superiors were questioned in the probe, but none of them faces charges.

Kerviel's dark-haired Gallic good looks also helped his mystique: T-shirts were sold proclaiming their wearers "Jerome Kerviel's girlfriend."

The former futures trader's defense contends his supervisors were aware of his risks but did not stop them as long as he was making money for Societe Generale. The bank denies that claim.

In Kerviel's book, out last month, "L'Engrenage: Memoires d'un trader" ("The Spiral: Memoirs of a Trader"), he compared his former job to prostitution, with his superiors eagerly counting his days' earnings, and likened that milieu to a "great banking orgy."

Kerviel is charged with forgery, breach of trust and unauthorized computer use. He risks five years in prison as well as a fine of $448,000 if convicted.

Societe Generale lawyer Jean Veil told the Sunday paper Journal du Dimanche that the bank would also seek damages in the amount lost in the scandal's aftermath, though he acknowledged that realistically Kerviel couldn't pay it. The massive sum earned Kerviel a nickname, "the 5-billion-euro man."

Among the defense arguments expected in court, Kerviel has argued that the bank was trying to deflect attention from subprime-related losses by making him a scapegoat.

Societe Generale secretly began unwinding $78 billion of Kerviel's positions on Jan. 21, 2008, when U.S. markets were closed because of Martin Luther King Day, putting massive pressure on futures markets and exacerbating its losses. That week was marked by turmoil in financial markets worldwide.

The bank revealed its actions three days later.

Rogue-trading trial starts today

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