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| Court in France Upholds Trader's Sentence and Fine | |
| (about 4 hours later) | |
| PARIS — A French appeals court upheld on Wednesday the 2010 conviction of Jérôme Kerviel, a former Société Générale trader whose rogue dealings brought the French bank to the brink of collapse almost five years ago. | |
| In her ruling, the appellate judge, Mireille Filippini, also upheld the trader’s original prison sentence of five years, with two suspended, and the trial court’s order that he pay €4.9 billion, or $6.3 billion, in restitution to Société Générale — equivalent to the amount the bank lost in the course of unwinding Mr. Kerviel’s fictitious trades in early 2008. | |
| Mr. Kerviel, 35, was found guilty by a lower court two years ago for breach of trust, forgery and unauthorized use of computer systems. | |
| The former trader, dressed in a dark suit and tie, listened impassively Wednesday as the judge read the verdict to a wood-paneled courtroom packed with journalists. He was not ordered into immediate custody. | |
| Addressing reporters after the hearing, Mr. Kerviel’s lawyer, David Koubbi, called the judge’s decision a “lamentable injustice” and said that the defense team would now discuss his remaining legal options, including an appeal to France’s highest court, the Cour de Cassation. | |
| If no appeal is filed, Mr. Kerviel could be ordered to begin serving his sentence as early as next week, legal experts said. | If no appeal is filed, Mr. Kerviel could be ordered to begin serving his sentence as early as next week, legal experts said. |
| The unwinding of an estimated €50 billion in unauthorized open positions on Mr. Kerviel’s trading book in late January 2008 cost Société Générale €4.9 billion, the equivalent of about $7 billion at the time. | The unwinding of an estimated €50 billion in unauthorized open positions on Mr. Kerviel’s trading book in late January 2008 cost Société Générale €4.9 billion, the equivalent of about $7 billion at the time. |
| Mr. Kerviel acknowledged at his original trial that he had falsified documents and entered fake trades to hide his activities, but said he never profited personally from those transactions. He maintained that his bosses had deliberately turned a blind eye to what he was doing and had tacitly encouraged him as long as it was profitable. | |
| The bank, meanwhile, had consistently denied those assertions, calling Mr. Kerviel an “evil genius” who acted entirely on his own. | |
| The judge’s 105-page ruling was unrelenting in its affirmation of all three charges against Mr. Kerviel and in the lower court’s calculation of the fine. | |
| “To the extent that Société Générale was perhaps negligent or maybe didn’t read all the warning signs, that didn’t serve to reduce the amount of damages or amount of prison time given to him,” said Christopher Mesnooh, a specialist in international business law with Field Fisher Waterhouse in Paris. “It is a lesson in personal responsibility in the extreme. This decision really is about Jérôme Kerviel and nobody else.” | |
| Jean Veil, a lawyer for the 148-year-old bank, said he was “very satisfied” by the court’s ruling but acknowledged that Mr. Kerviel — who is currently unemployed — was unlikely to ever repay the bank the full sum it was awarded. | |
| “We will look at the dossier with realism,” Mr. Veil said, but vowed to pursue royalty payments linked to a memoir published in 2010 and any possible film deals in the future. | |
| Société Générale had admitted to management failures and weaknesses in its risk control systems, which it claimed Mr. Kerviel exploited to mask his unauthorized bets. An internal audit published in May 2008 described Mr. Kerviel’s immediate supervisors as “deficient” and acknowledged that the bank had failed to follow through on at least 74 internal alerts about his trading activities dating to mid-2006. | |
| The French Banking Commission later fined Société Générale €4 million. Two of Mr. Kerviel’s supervisors were dismissed by the bank and a handful of senior executives ultimately resigned, including Daniel Bouton, who had been Société Générale’s chairman and chief executive. | |
| Auditors found that Mr. Kerviel had been placing bets outside his trading limit for more than two years. Société Générale confirmed that it booked €1.4 billion in profit in the fourth quarter of 2007 from his unauthorized dealings. | |
| But when the market turned against him, eight large transactions entered into the bank’s computers in mid-December 2007 exposed the bank to €50 billion in risk — more than the market value of the bank. His last and, by far, biggest gamble was discovered Jan. 18, 2008. It was the unwinding of those trades, from Jan. 21 to Jan. 23, that led to the loss of €4.9 billion. | But when the market turned against him, eight large transactions entered into the bank’s computers in mid-December 2007 exposed the bank to €50 billion in risk — more than the market value of the bank. His last and, by far, biggest gamble was discovered Jan. 18, 2008. It was the unwinding of those trades, from Jan. 21 to Jan. 23, that led to the loss of €4.9 billion. |
| In the aftermath of the scandal, Mr. Kerviel spent five weeks in pretrial detention and became something of a French folk hero. Much was made of the fact that someone from such a modest background — his mother was a hairdresser, his late father a metal-shop teacher — could dupe so many of his bosses, many of them well-bred graduates of the best French schools. | In the aftermath of the scandal, Mr. Kerviel spent five weeks in pretrial detention and became something of a French folk hero. Much was made of the fact that someone from such a modest background — his mother was a hairdresser, his late father a metal-shop teacher — could dupe so many of his bosses, many of them well-bred graduates of the best French schools. |
| The Société Générale scandal was one of the first fractures in the facade of what was then broadly perceived as an aggressive but essentially self-regulating financial system, giving rise to early calls against excessive risk-taking and lavish bonuses that have grown steadily louder since. | The Société Générale scandal was one of the first fractures in the facade of what was then broadly perceived as an aggressive but essentially self-regulating financial system, giving rise to early calls against excessive risk-taking and lavish bonuses that have grown steadily louder since. |
| It came not long after the first indications of the subprime mortgage crisis surfaced in the United States in August 2007 and was followed in March and September of 2008 by the demise of two flagship investment banks, Bear Stearns and Lehman Brothers. | It came not long after the first indications of the subprime mortgage crisis surfaced in the United States in August 2007 and was followed in March and September of 2008 by the demise of two flagship investment banks, Bear Stearns and Lehman Brothers. |