French rogue trader admits to concealing high-risk deals

FRENCH trader Jerome Kerviel admitted to concealing multi-billion-dollar deals at Societe Generale, a prosecutor said yesterday, as the bank was hit by insider trading allegations and a plunging share price.

The 31-year-old junior trader appeared before a Paris investigating judge who was expected to formally charge him as a group of shareholders took legal action over a sale by a US member of the bank’s supervisory board.

Kerviel admitted “he carried out a certain number of acts to conceal reckless positions on the markets,” said prosecutor Jean-Claude Marin.

The bank said this led to a loss of €4.9 billion.

But Kerviel did not try to profit personally from the financial deals, said Mr Marin.

“He wanted to be seen as an exceptional trader, an astute market player,” he said adding that Kerviel was attracted by the prospect of a €300,000 bonus.

“He went beyond what he was authorised to do on the market but he wasn’t trying to plunder the bank.”

Kerviel could face a seven-year jail term and a €750,000 fine if found guilty of fraud.

The bank’s shares plunged 7% to €68.67 in morning trading.

Bank chairman Daniel Bouton went to London in a bid to shore up investor support for a proposed €5.5bn capital increase to cover the trading losses and 2bn of losses in the US sub-prime market.

But about 100 Societe Generale shareholders filed suit for insider trading and manipulating share prices after the market regulator AMF revealed that a supervisory board member had sold shares worth €85.7 million on January 9.

The bank’s stock has lost about 50% of its value since May last and 22% since the close on January 9.

The suit by members of the Association of Small Shareholders targets US citizen Robert A. Day and two foundations linked with him, said lawyer Frederik-Karel Canoy.

Finance Minister Christine Lagarde backed the bank’s handling of the case and ruled out the need for a merger partner.

“There is no reason to doubt that the bank did everything that it had to do in terms of regulations,” she told France 2 television.

According to the prosecutor, Kerviel started his unauthorised high-risk trading in share futures in late 2005, carrying out “a certain number of profitable operations for his employer”.

During questioning, Kerviel claimed that other traders had resorted to the same manoeuvres, although not on the same scale.

He turned himself in to police on Saturday to answer accusations from the bank that he falsified documents and gained unauthorised computer access to circumvent risk-management controls. His lawyers have accused the bank of turning him into a scapegoat and trying to “create a smokescreen” to cover up wider losses from the US subprime mortgage crisis.

They argue the bank brought the losses on itself by hastily selling off Kerviel’s positions last week after discovering his trades and hedges on share futures.

Kerviel had held positions worth about €50bn when he was caught — well in excess of the bank’s market value of €35.9bn and its shareholder funds.

According to Mr Marin, the bank challenged Kerviel several times about risky operations, but each time he produced fictitious documents to justify himself.

Even before his alleged fraud was revealed last Thursday, Kerviel’s trading apparently triggered occasional alarms but not to a degree that led managers to investigate further.

The bank says Kerviel built up futures positions worth €30bn into the Eurostoxx index, €18bn on Germany’s DAX and €2bn on the London FTSE.

The bank said Kerviel used other people’s computer access codes and, falsified documents to cover his tracks.