October 24, 2012

Kerviel Loses Appeal on SocGen Trading Loss

Verdict from 2010 finding trader solely responsible is upheld

More On Legal & Compliance

from The Advisor's Professional Library
  • Differences Between State and SEC Regulation of Investment Advisors States may impose licensing or registration requirements on IARs doing business in their jurisdiction, even if the IAR works for an SEC-registered firm.  States may investigate and prosecute fraud by any IAR in their jurisdiction, even if the individual works for an SEC-registered firm.
  • Client Communication and Miscommunication RIA policies and procedures must specify what type of communications should be retained. The safest course of action is for RIAs to retain all communications—to clients, from clients, and about client accounts.  To comply with fiduciary obligations, communications must be thorough and not mislead.

The 2010 verdict by a French court finding Jerome Kerviel solely responsible for Société Générale's trading losses of 4.9 billion euros ($6.34 billion) in 2008 was upheld Wednesday by a Paris appeals court.

Bloomberg reported Wednesday that the decision by Judge Mireille Filippini upheld the earlier verdict, which found that Kerviel was guilty of abusing SocGen’s trust, faking documents and entering false data into the computers.

Kerviel had argued that the bank was aware of the actions he took beyond his authority, and further, was scapegoating him for its 2008 subprime mortgage market loss—one of the largest in history. The loss was so massive that it obliterated nearly two years of pretax profit at the bank’s investment banking unit.

In his quest for exoneration, Kerviel changed his defense lawyers and even filed criminal complaints against SocGen prior to the appeal hearings. As the appeal went forward, his lawyers asserted that the bank had used Kerviel, letting him make unauthorized trades to hide its jeopardy from the subprime mortgage market in the U.S.

In response, SocGen charged defamation and the judge actually argued openly with Kerviel’s lawyer, David Koubbi. At one point, citing his treatment of witnesses, the judge threatened him with action from the bar association.

Koubbi was quoted saying after the ruling was issued, “We strongly defended Jerome Kerviel and despite the new elements that we brought forward, nothing changed their mind. We will continue to defend him against what has been a great injustice.”

The prosecution asked Filippini to raise Kerviel’s sentence from the three years cited in the 2010 verdict to the maximum of five years.

Reprints Discuss this story
This is where the comments go.