PEOPLE & EVENTS: Rogue Trader Incurs Huge Financial Losses for French Bank

In a country where market capitalism is often held in disdain, Société Générale was a Gallic success story—the Chateau Margaux of French banking. So it was a shock to their national pride when executives at Société Générale, one of Europe's largest banks, disclosed that Jerome Kerviel, a 31-year-old French trader at the bank, had incurred unauthorized trading losses valued at approximately $7.1 billion (€ 4.9 billion), the largest loss ever by a rogue trader.¹

Like a number of other infamous rogue traders, Kerviel started with the bank in the back office of the trading division. There he learned how the bank's trading system and the complex internal control systems worked. After 5 years in the back office, in 2005, he was promoted to junior trader and, in late 2006, he began creating fictitious stock market trades. Citing Kerviel's extensive knowledge of the bank's operating and internal control systems, bank officials described how hundreds of thousands of trades were hidden behind offsetting, faked hedge trades. Kerviel knew that he had to close the trades in just 2 or 3 days so the bank's automated, timed controls would not trigger an “abnormality notice” from the internal control system. Ker....²