Accused rogue trader Jérôme Kerviel arrives at a Paris courthouse on June 8, 2010
Did Frenchman Jérôme Kerviel act alone when his trading cost his employer Société Générale $5.9 billion in losses and nearly wiped the bank out? Or was he simply a cog in a system of manipulation, conniving and gambling that was common to global financial markets — and willfully ignored by the banks that racked up enormous profits from that activity? The bank insists Kerviel was a lone rogue; he says his actions were business as usual. Those opposing perspectives are on view with Tuesday's opening in France of the long-awaited trial pitting Kerviel against Société Générale — and, more broadly, the country's financial sector vs. its public opinion, which is increasingly disdainful of American-style "casino capitalism."
Kerviel is facing criminal charges and civil complaints for breach of trust, forging documents and illicit use of Société Générale's computer system to facilitate and mask uncovered trades worth nearly $60 billion at one time — far more than the bank itself is worth. If convicted, Kerviel faces a maximum five-year prison term, a $450,000 fine and billions of dollars in damage payments.
When it announced losses of $5.9 billion from that exposure in early 2008, Société Générale officials said they were stunned to discover the extent of the fraudulent trading — going so far as to call Kerviel a "terrorist" for taking France's second largest bank to the brink of destruction. Though Kerviel, 33, admits to having lost control of his actions — and going to great lengths to cover his gambling of bank funds — he has steadfastly maintained that such activity was common among Société Générale traders and benignly ignored by clued-in superiors throughout the hierarchy.
Which version is correct? Evidence suggests a degree of both may be true. Though it's clear his Société Générale bosses would not have allowed such wild speculative trading to put the bank's very existence in peril, there is reason to suspect that they may have looked the other way at manageable levels of that activity. An internal audit after Kerviel had been discovered found that more than 70 alerts of suspicious trading since mid-2006 had not been followed up — including two risky trades worth nearly $8 billion in 2007 that didn't appear to be hedged as required by safe trades with an equal amount. The same report described Kerviel's direct superiors as "deficient," and France's banking commission later fined Société Générale $4.8 million for what it faulted as "significant weaknesses" in the bank's risk-management and trade-monitoring systems.
Thus far, however, no hard evidence has been presented showing that bank officials knew Kerviel was involved in excessive and forbidden trading. Moreover, each time Kerviel was challenged on questionable transactions, Société Générale and prosecutors contend, he used his trading and computer savvy to doctor or delete files to cover his tracks. Kerviel denies none of that but insists it was all part of an understanding within the bank — and indeed, across the global financial sector that has since imploded — that breaking the rules was fine so long as it paid off.
"Within the great banking orgy, traders only get the consideration any prostitute does: a quick thanks that the day's take was good," Kerviel wrote in tell-all book The Spiral: A Trader's Memoirs. "In the front office, the ideal modus operandi can be summed up in one phrase: know how to take maximum risk to gain the bank maximum money."
That defense — especially delivered as an accusation — will continue winning Kerviel supporters in French public opinion, even if it scores him no points with judges. Following his arrest, Kerviel briefly attained anti-hero status as bloggers praised him as a Robin Hood character striking out at fat-cat bankers and as online vendors sold T-shirts depicting him as a rebel and revolutionary. That image has since changed with Kerviel's own depiction of having been a believer and volunteer in the global financial con game that led to the crisis.
Nevertheless, the details of just what went on at the heart of world finance markets before they caved in — from Lehman Brothers to Goldman Sachs — have sharpened the French public's traditional distrust of big money and excessive profit and even led conservative President Nicolas Sarkozy to crusade for "moralizing capitalism" and "sanitizing" global financial markets. Kerviel's trial may well stoke those feelings in France further. "French culture doesn't respect economics and finance as Anglo-Saxon nations do, and the French suffer a kind of ethical neurosis over money — which represents inequality and power above all," says Marc Touati, deputy director at financial advisory Global Equities in Paris. Widespread public interest in Kerviel's case reflects that, Touati suggests, and explains why many French people went into the trial's opening on Tuesday viewing Société Générale as both victim and co-defendant alongside its former trader.