[Infowarrior] - Fraud charge dismissed against SG 'rogue' trader

[Richard Forno]

SocGen in disarray as judges throw out fraud charge against trader

· Bank admits it was warned on more than one occasion
· Shareholders go to court over alleged insider dealing

    * David Gow and Emilie Boyer King in Paris
    * The Guardian,
    * Tuesday January 29 2008

http://www.guardian.co.uk/business/2008/jan/29/europeanbanks.banking


The Société Générale affair descended deeper into the mire last night as
investigating judges threw out the most serious accusation, attempted fraud,
put forward by prosecutors against the trader behind the €4.9bn losses,
Jérôme Kerviel.

They released him under judicial supervision, or bail, after two days of
police questioning, leading his lawyers to claim a substantial victory. The
surprise threatened to undermine the bank's increasingly fragile defence
that he had used ingeniously fraudulent devices, including hacking into
colleagues' internet codes, to hide his gambling on equity derivatives
trading markets.

Kerviel ran up an exposure of €50bn, costing France's second-largest bank a
record loss in banking history as it unwound his positions last week. The
prosecutor's office, which wanted to charge him with fraud, said it would
appeal against the release. He has been placed under formal investigation
for lesser allegations of breach of trust, computer abuse, and
falsification. "There is no fraud," said Christian Charriere-Bournazel, one
of Kerviel's two lawyers, accusing Daniel Bouton, SocGen's chief executive,
of "throwing him to the dogs" and "holding him up for public vilification."

Earlier, a lawyer acting for 100 small shareholders sued the bank over
insider trading and market manipulation, and minority investors accused it
of issuing misleading information.

And Kerviel, depicted by the bank as a "lone" rogue trader, also increased
SocGen's woes by accusing his colleagues of having similarly traded beyond
their limits. Prosecutors said the bank had been alerted by the Eurex
derivatives market to the scale of his positions as long ago as November
last year.

Prosecutor Jean-Claude Marin said Kerviel had been able to fool his employer
by producing a fake document to justify the risk cover - a comment seized
upon by SocGen as it struggled to defend itself against charges its controls
were so extraordinarily lax that Kerviel acted unapprehended for 15 months.

Eurex said its controls "functioned correctly at all levels, also in this
case", while Socgen admitted it had been warned by the Deutsche Boerse
subsidiary more than once. "There were false trades picked up but he
[Kerviel] explained them away, justified them, or fabricated covers."

An enraged Colette Neuville, head of Adam, a minority shareholders' lobby,
disclosed she had asked the AMF, the French financial services authority,
for a formal inquiry into alleged insider trading by a director and/or
others at the bank. She also wants the AMF to investigate whether the bank
deliberately misled investors over its sub-prime losses in November when it
put them at €230m, only to announce a €2.05bn hit two months later. She told
the Guardian. "There are strong possibilities that the information given to
shareholders was incorrect - misleading."

The lawyer, Frederik-Karel Canoy, said he had begun legal action against
SocGen over how it unwound billions of euros in allegedly fraudulent share
deals last week. The bank said on Sunday it unwound Kerviel's positions,
€50bn, "in particularly unfavourable market conditions" between Monday and
Wednesday last week after discovering them on January 18.

Canoy, a thorn in the flesh of French companies, told Reuters the bank
should have told markets about its pending losses before its huge three-day
selling spree.

SocGen says it unwound these positions in a controlled manner and within a
volume limited to less than 10% to "respect the integrity of markets". It
won support from Bank of France governor Christian Noyer: "The way Société
Générale has handled its affairs to unwind positions in a very short space
of time, and without moving the markets, contrary to what has been said,
because they remained within normal trading limits ... was very
professional."

Canoy also filed a complaint about the sale of 1m shares by SocGen director
Robert Day on January 9 and 10, disclosed in AMF filings, shares worth
€85.7m in his own name, and €8.63m and €959,066 from two foundations
"linked" to him.

The bank said the sale had come "well before" it knew of any fraud, while
sources, dismissing Canoy's move as a stunt, insisted that only a few senior
officials, excluding Day, could have known of pending losses when he sold
his shares.

But Neuville, in a letter to the AMF, insisted that share sales had taken
place just before Socgen shares started to slide on January 14 - or four
days before Kerviel's fictitious and fraudulent dealings were first detected
inside the bank on January 18. "There are people who had access to
information that was not publicly known; there's a suspicion of insider
trading, and there must be a formal inquiry."

Kerviel has admitted hiding his activities but accused colleagues of trading
beyond their limits, Marin said earlier.

Prosecutors had sought charges against Kerviel for offences of forgery and
fraud, with a sentence of up to seven years.

Marin said the 31-year-old, who gave himself up on Saturday, had told
investigators that his and other irregular deals had taken place since the
end of 2005, a dagger at the heart of Socgen's defence that he was a one-off
fraudster of genius.

Marin said the investigation had shown Kerviel did indeed act alone - to
prove himself a star trader and earn a bonus of €300,000, rather than to
harm the bank.

The bank has so far dismissed two managers over the scandal: Luc François,
head of equity derivatives trading, and Jean-Pierre Lessage, Kerviel's
direct manager.