Analysis: Rogue Trader at Societe Generale Leads to $7 Billion Fraud-Related Loss

A 31-year-old trader at Societe Generale SA, using inside knowledge of the bank’s security systems, made unauthorized and fictitious futures transactions that have cost the French bank $7.16 billion and embroiled it in what may be the largest rogue trading case in global corporate history, according to reports published today in the Financial Times, Wall Street Journal and other news outlets.

According to the Financial Times, before being promoted to the trading desk, trader Jerome Kerviel had worked in the bank’s back office, where he learned a “deep knowledge” of risk-control procedures that allowed him to hide fraudulent activities involving European stock futures markets.

The bank announced it would take a writedown of 4.9 billion Euros ($7.16 billion) due to the fraud, and an additional 2.05 billion Euro writedown due to its subprime exposure. The Wall Street Journal reported that Chief Executive Daniel Bouton apologized and announced that staff would not get stock options or bonuses for 2007, and that neither he nor co-CEO Philippe Citerne would take a fixed salary through June.

Both papers compared the incident to the $1.3 billion fraud by the U.K.’s Nick Leeson, which led Barings Bank to bankruptcy in 1995.

To learn more about this type of fraud, visit CSO’s archives:

* “Going Broad on Fraud,” an interview with Jim Ratley of the Association of Certified Fraud Examiners

* “The Fraud Squad,” an in-depth article about how CSOs, investigative teams and other business leaders can fight electronic fraud

* “Anatomy of a Fraud,” a detailed story of how a small-biz owner fell victim to a check-tampering case