French trader accused of massive fraud is released

January 28, 2008 1:10:54 PM PST
Investigating judges filed preliminary charges Monday against a trader accused of causing billions in losses for France's second-largest bank and released him from custody, his lawyer said Monday. Jerome Kerviel was preliminarily charged with "breach of trust" and unauthorized computer activity, said attorney Christian Charriere-Bournazel. The lawyer did not disclose his whereabouts.

He said Kerviel would be subject to "very minor" monitoring by authorities, though he did not elaborate.

The allegedly illicit trades, if confirmed, would amount to the largest securities fraud ever committed by an individual. Societe Generale said it lost 4.82 billion euros ($7.09 billion), but that the low-level trader was making deals worth tens of billions.

The prosecutor had asked earlier Monday for charges on two other counts as well: attempted fraud and forgery. The investigating judges did not pursue those, the lawyer said, without elaborating.

Elisabeth Meyer, another defense lawyer, called the decision, "a victory."

If convicted, Kerviel could face up to seven years in prison with a hefty fine.

His attorneys say Kerviel has been made a scapegoat by the bank, which they allege is trying to cover up huge losses in the subprime mortgage market.

Under French law, filing preliminary charges means an investigating magistrate has determined there is strong evidence to suggest involvement in a crime. It gives the investigator time to decide whether to bring the case to trial.

Paris prosecutor Jean-Claude Marin said Monday that Kerviel, 31, did not attempt to steal money from the bank or its customers, but was motivated by a desire to be "an exceptional trader" and that he sought performance bonuses.

Kerviel appears to have acted alone, Marin said.

"It's always a bit for money, I'm not sure that was his prime motive," said the prosecutor. "It functions a bit like a drug, it's an addiction ... there's a sort of spiral you can't get out of."

Bank shares fell nearly 4 percent to 70.94 euros ($104.32) Monday.

Questions about how the bank handled the alleged fraud are mounting. A lawyer for a group of Societe Generale shareholders, Frederik Canoy, said a legal complaint was filed Monday asking investigators to look into possible insider trading.

The complaint was filed after France's market watchdog said in a routine disclosure that a member of Societe Generale's board, Robert A. Day, sold 85.75 million euros ($126.1 million) worth of shares in the bank on Jan. 9 - two weeks before the fraud announcement and well before bank management says it knew about the problem. Day is an investment manager with U.S.-based Trust Company of the West, or TCW.

Two foundations linked to Day, the Robert A. Day Foundation and the Kelly Day Foundation, also sold a total of 9.59 million euros ($14.1 million) worth of shares a day later, on Jan. 10, the market watchdog reported. Regulators have made no allegations of wrongdoing.

Telephone calls to both Day foundations and TCW were not immediately returned Monday.

Societe Generale CEO Daniel Bouton rejected suggestions from defense lawyers that the bank was using Kerviel to hide bank losses.

"How could you want to imagine that we would have been able to hide a hole by another hole? It's completely stupid," Bouton told Europe-1 radio. He called Kerviel a "remarkable concealer" who had managed to outwit the bank's risk control systems by toggling between real and fictitious positions.

"That's what created this gigantic fraud," he said.

Meyer said her client's trades had been profitable throught the end of last year.

"In my view, he was thrown to the lions before being able to explain himself," said Meyer. "It's a lynching."

The prosecutor, however, said the trader only "virtually" made a profit for the bank before his deals soured.

Societe Generale alleges that Kerviel used other people's computer access codes, falsified documents and used other methods to cover his tracks - helped by his previous experience in other offices at the bank that monitor traders. It says he bet some 50 billion euros ($73.53 billion) - more that the bank's market worth - on European markets.