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French trader 'concealed deals' French trader under investigation
(about 2 hours later)
The trader at the centre of an investigation into losses at Societe Generale has admitted to hiding deals, according to the Paris prosecutor. The trader blamed for huge losses at French bank Societe Generale has been placed under formal investigation.
Jerome Kerviel told police he hid his actions to appear like an "exceptional trader" and to boost his annual bonus. A Paris prosecutor has also asked for preliminary charges of forgery, breach of trust and fraud to be filed against Jerome Kerviel.
A fraud inquiry has begun, and the prosecutor has asked for preliminary charges of forgery, breach of trust and fraud to be filed against the trader. The prosecutor said Mr Kerviel hid his trades to make him appear as an "exceptional trader", but he did not mean to damage the bank.
Societe Generale has blamed a 4.9bn euro ($7bn; £3.7bn) loss on Mr Kerviel. Societe Generale says his actions cost it 4.9bn euros ($7bn; £3.7bn).
'Great pretender' 'Great pretender"
Lawyers for Mr Kerviel said he had "committed no dishonest act". "He did not do it directly for his personal gain. He acted as a trader, he certainly acted outside the authorisation he'd been given to trade on the market, but he didn't do it expressly to damage the bank through fraudulent operations," said prosecutor Jean-Claude Marin.
"He did not siphon off a single cent, and did not profit in any way" from the bank's assets, Mr Kerviel's lawyers told the AFP news agency.
SOCIETE GENERALE IN FIGURES Founded in 1864467bn euros in assets under management (as of June 2007)22.5m customers worldwide120,000 employees in 77 countries Societe Generale share priceSOCIETE GENERALE IN FIGURES Founded in 1864467bn euros in assets under management (as of June 2007)22.5m customers worldwide120,000 employees in 77 countries Societe Generale share price
They also accused the bank of trying to "create a smokescreen which would divert public attention from losses that were significantly more substantial than those it accumulated in recent months". Societe Generale says that Jerome Kerviel had a position, or a bet, worth about 50bn euros ($73bn; £37bn) on the future direction of European shares.
But the bank says that it is the victim.
Speaking on French radio, Daniel Bouton, chief executive of Societe Generale, said: "This fraud has been committed by a great pretender, who has succeeded in navigating the many sophisticated control systems that we have, to permanently conceal what he was doing, while also going about his normal activities."
'Unfavourable market'
Shares in Societe General were as much as 7% lower on Monday, after negative comments on the outlook for the bank from Citigroup and WestLB.
Societe Generale says Mr Kerviel gambled about 50bn euros ($73bn; £37bn) before being discovered.
When the bank closed all the deals he had allegedly made, it was hit with a loss of 4.9bn euros.
Societe Generale said his background in handling the administration of trades enabled to fool those who are meant to monitor traders' activities.
He had committed some 50bn euros to purchase "futures" portfolios - effectively betting on the future direction of the stock market - the bank said.
Journalists have yet to get a glimpse of Mr Kerviel
That was more than the bank's value - about 35bn euros - and about the size of France's entire annual budget deficit.That was more than the bank's value - about 35bn euros - and about the size of France's entire annual budget deficit.
Traders are supposed to balance each purchase with a sale, but Mr Kerviel allegedly made up fictitious sales, leaving the bank massively overcommitted. To avoid that potentially catastrophic loss the bank had to unwind Mr Kerviel's trades, but that still cost it 4.9bn euros.
Societe Generale said the deals, after being discovered last weekend, had to be "undone as soon as possible, due to the risks tied to the amount", even though "market conditions were very unfavourable". Societe Generale said Mr Kerviel's background in handling the administration of trades enabled him to fool those monitoring traders' activities.
The bank said its traders worked on the matter for three days, finally closing the positions on 23 January. It says Mr Kerviel invented deals that, on paper, balanced out his bets.
Analysts have suggested that Societe Generale's massive sell-off may have played a part in sparking the huge losses suffered by world stock markets early last week, but the bank denies this. Journalists have yet to get a glimpse of Mr Kerviel
But the bank's internal controls are being questioned.
Mr Marin says the European derivatives exchange, Eurex, questioned Kerviel's trading positions in November.
He also said Mr Kerviel told police that other traders had exceeded their trading limits.
But the bank insisted it was the victim of a complex deception.
Speaking on French radio, Daniel Bouton, chief executive of Societe Generale, said: "This fraud has been committed by a great pretender, who has succeeded in navigating the many sophisticated control systems that we have, to permanently conceal what he was doing, while also going about his normal activities."
Societe Generale's shares were down 6% on Monday.