[Infowarrior] - $7.8B "insider" fraud at Societe Generale

[Richard Forno]

Not sure if this is negligence, gross negligence, plain stupidity, of if
this guy is really the 'smart hacker-rogue-trader' that he's being made out
to be in the media.   Then again, there are conspiracy theories floating in
the financial world suggesting that this guy really is taking a fall for the
bank's exposure to global CDOs and SIVs rather than the bank accepting
responsibility for them.  Who knows? Whatever the cause, just sheeeesh!

Security controls and auditing? Surely you jest......

-rf 


http://www.iht.com/articles/2008/01/24/business/socgen.php

Société Générale, one of the largest banks in Europe, was thrown into
turmoil Thursday after it revealed that a rogue employee had executed a
series of "elaborate, fictitious transactions" that cost the company more
than $7 billion, the biggest loss ever recorded in the financial industry by
a single trader.

< - >

Société Générale said it had no indication whatsoever that the trader - who
joined the company in 2000 and worked for several years in the bank's French
risk-mangement office before being moved to its Delta One trading desk in
Paris - "had taken massive fraudulent directional positions in 2007 and 2008
far beyond his limited authority."

The bank added: "Aided by his in-depth knowledge of the control procedures
resulting from his former employment in the middle-office, he managed to
conceal these positions through a scheme of elaborate fictitious
transactions."

The trader - whom Noyer said "breached five levels of controls," and was "a
computer genius" - continued the fraud until this past weekend, when
auditors in the company's risk-management office detected a series of
fictitious trades on its books, which it said was committed by an employee
in charge of hedging the bank's trades in European stock index futures.

When the fraud was unveiled, Bouton said, it was "imperative that the
enormous position that he had built, and hidden, be closed out as rapidly as
possible."

The timing could hardly have been worse. Société Générale was forced to
begin unwinding the trades on Monday "under conditions of extreme market
volatility," Bouton said, as global stock markets plunged amid mounting
fears of an economic recession in the United States.