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French Trader Accused of Tweaking Bank Computers

Societe Generale officials say a 31-year-old trader blamed for more than $7 billion in losses tampered with the French bank's computer security systems to make secret trades. But lawyers for Jerome Kerviel say he's a scapegoat who did nothing wrong.

Transcript

STEVE INSKEEP, host:

In France, investors are still reeling from a giant scandal at one of the country's biggest banks. And on our Monday focus on technology, we look at the latest revelations about the historic rogue trading incident. The French bank, Societe Generale, recently discovered that a single trader had run up $7 billion in losses.

Apparently the young employee manipulated the computer systems, as Eleanor Beardsley reports.

ELEANOR BEARDSLEY: Some analysts suspect Societe Generale's massive sell-off last week, as it tried to close out of some $70 billion of fraudulent positions, may have actually contributed to the worldwide market slide, a stock plummet that pushed the Federal Reserve to lower U.S. interest rates.

Unidentified Man: (Speaking French)

BEARDSLEY: The details of the world's largest trading scam continue to monopolize television news coverage in France. Over the weekend, 31-year-old rogue trader Jerome Kerviel was taken into police custody, where he has been under questioning about the scam.

His lawyers claimed their client did nothing wrong and was simply trying to earn money for the bank. Societe Generale, they say, is using Kerviel as a scapegoat to offset their $3 billion losses in the U.S. subprime mortgage market.

This morning in a radio interview, Societe Generale's CEO Daniel Bouton insisted that Kerviel worked alone.

Mr. DANIEL BOUTON (CEO, Societe Generale): (Through translator) We have the computer traces of all his operations. We looked at everyone working in his sector. Operations comparable to his were also verified. The security system of the bank was broken by this man, and it is not feasible that anyone else was involved.

BEARDSLEY: Societe Generale admitted Sunday that Kerviel's activities had prompted questions from risk managers several times last year, but that it never began an investigation because it accepted the trader's explanations.

The bank insists the elaborate year-long ruse was Kerviel's alone and has outlined how he combined several different fraudulent methods to hide his activity and break through three different layers of controls. These methods included using computer access codes of other employees and falsifying documents.

But trader John Malbaux(ph), who works at Paris-based investment bank Global Equity, is skeptical. He says even a computer genius could not perpetrate such massive fraud alone.

Mr. JOHN MALBAUX (Trader): Normally it's not possible you can hide 50 billion euro of position without anybody knowing about such a position. I'm very doubtful and I'm like a lot of guys here, a lot of analysts, about the guy taking the position alone.

BEARDSLEY: The colossal scam and losses are a huge embarrassment for Societe Generale. It is also a sting to French pride. French banks have long been leaders in the complex world of equity derivatives. Many say French expertise in the field is founded on a solid teaching in math, finance and engineering.

Sammy Kabage(ph) is a former French derivatives trader who wrote a book titled "The Art of Trading." He believes that it is exactly the French trading house model that may have allowed Kerviel to get away with it alone.

Mr. SAMMY KABAGE (Trader): (Through translator) There is an unbalanced hierarchy between the back and front offices in France that doesn't exist in Anglo-Saxon trading houses. The front office has too much power here and the back office not enough. There are times when the back office doesn't even have access to all the information. And the employees in the back offices aren't traders by profession, and this is a problem.

BEARDSLEY: Under French law, Jerome Kerviel must either be released today or officially charged and placed in front of an investigating judge. A Paris prosecutor today has asked for preliminary charges of forgery, breech of trust and fraud.

For NPR News, I'm Eleanor Beardsley in Paris. Transcript provided by NPR, Copyright NPR.

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