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Jerome Kerviel

Jérôme Kerviel: When A Trader Places Unauthorized Trades

Jérôme Kerviel was a french trader born in 1977. In 2000 he joined Société Générale, one of the largest banks in Europe. They hired him for the compliance department.

By 2005 they promoted him to a junior trader, and likely due to money issues, he began fabricating trades in 2006. He did this secretly, and he covered his tracks. The first trades he hid were small, but he gradually hid larger trades, and more often.

He even hid his profits throughout the entire year of 2008 so that his unauthorized trades would appear less noticeable. He was trading stock index futures. These are assets that were far beyond what was allowed to trade.

Société Générale discovered what was going on with Jérôme in January 2008. They also found his hidden profits of €1.4 billion. These profits were, however, a small sliver of what Kerviel had done. In reality, Jérôme Kerviel had done rogue trading to the tune of a dizzying €50 billion.

Société Générale found this out at an unfortunate time when the indices were down a lot. Nevertheless, they had to liquidate this huge position. They did this over 3 days, beginning on Jan 21, 2008.
These sales alone lost about €5 billion for the company.

Many people are not convinced that Jérôme Kerviel’s story is so simple. It has often been suggested that there is no way that Société Générale could have missed this level of trading. The size of his position was around 1.5 times the entire market capitalization of Société Générale.

Another point people often raise is how Société Générale took part in fostering the culture that Jérôme arguably took advantage of. Many say that this French bank looked the other way, as long as the dirty trading made profits. Kerviel’s family claimed he was being used as a fall guy for more losses than he actually created.

Regardless of how much each party was at fault, Jérôme’s trades represent the most significant losses by a rogue trader in history. The higher-end estimate of the combined losses created by Jérôme Kerviel is $7.2 billion. This loss is over 5 times the losses of Nick Leeson, the second biggest rogue trader in history.

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