By Gordon Rayner
The Daily Telegraph
The rogue trader accused of the biggest fraud in banking history stayed
"invisible" for weeks by hacking into his bank's computer system and
removing all traces of his multi-billion pound losses, it has been
Jerome Kerviel made a mockery of Socit Gnrale's reputation as one of the
world's best-run banks by effectively "switching off" automatic warning
systems designed to instantly flag up any unusual trading patterns, it
Despite a massive overhaul of compliance procedures by all banks in the
wake of the 1995 Nick Leeson affair, when his fraudulent trading caused
the collapse of Barings Bank, SocGen was guilty of a "catastrophic
failure" to prevent a similar incident, experts said.
Mr Kerviel is alleged to have used his considerable computing skills and
inside knowledge gained during five years working in the bank's
compliance department to hide up to 60 billion of illegal trading, which
resulted in losses of 3.7 billion.
It was only when he slipped up on Friday by failing to "deactivate" part
of the bank's warning system that his alleged fraud was discovered.
SocGen's chairman and chief executive, Daniel Bouton, said: "The ghost
trader had an in-depth knowledge of the control procedures resulting
from his former employment in the middle office, and he managed to
conceal these positions through a scheme of elaborate fictitious
Despite employing 2,000 people in its compliance department, the bank
was seemingly powerless to stop Mr Kerviel gambling with its money.
Ralph Silva, an analyst for the Tower Group financial services firm,
said: "This was a catastrophic failure in SocGen's operational risk
"This trader has found some way to beat the system, and the worry for
other banks is that their control procedures will always lag behind a
Mr Kerviel, who is said to have set up fake accounts to take huge bets
on the movement of European stock markets, was hauled into the bank's
office in Paris's La Defense for an all-night grilling on Saturday, at
which point the bank's losses stood between 1.2 billion and 2 billion.
In the time it took the bank to wind down the allegedly false accounts
created by Mr Kerviel, the stock markets had plunged and the losses grew
to 3.7 billion.
Jean-Pierre Mustier, the chief executive of the bank's corporate and
investment banking department, said he was "convinced" the rogue trader
had acted alone.
Mr Bouton said: "His motives are totally irrational. It doesn't seem
that he was able to benefit from these colossal trades and directly he
did not, that is for sure, although investigations will have to be
Mr Bouton added that Mr Kerviel's salary was: "Not more than 100,000
including bonus. Having said that, he's not received a bonus this year,
and probably won't be asking for one."
Shares in SocGen were suspended yesterday. It said it was taking legal
action against Mr Kerviel, and that he was facing a possible criminal
"Five or six" senior traders who were meant to be managing him were also
The bank said its full-year net profit would drop to 450-600 million
from 3.72 billion a year earlier because of the alleged fraud, and other
losses. The bank also announced further loses of 1.5 billion related to
the global credit crunch.
Subscribe to InfoSec News