French ex-trader to pay $6.7B for fraud

Former Societe Generale SA trader Jerome Kerviel was convicted on all counts Tuesday in one of history’s biggest trading frauds. He was sentenced to three years in jail and ordered to pay the bank $6.7 billion in damages.

The ruling marked a huge victory for Societe Generale, one of France’s most blue-blooded banks, which has worked to clean up its image and put in place tougher risk controls since the scandal broke in 2008.

The 33-year-old former futures index trader was found guilty on charges of forgery, breach of trust, and unauthorized computer use for covering up bets worth nearly $69 billion between late 2007 and early 2008.

The court also ordered Kerviel to pay the bank back the $6.7 billion that it lost unwinding his complex positions in January 2008—a punishment he would almost certainly be unable to pay. That sum marked the largest-ever alleged fraud by a single trader.

Defense lawyer Olivier Metzner said Kerviel would appeal and will remain free pending that appeal.

Societe Generale spokeswoman Caroline Guillaumin called the verdict “an important ruling that acknowledges the moral and financial harm done to the bank and its staff.”

Kerviel maintained that the bank and his bosses tolerated his massive risk-taking as long as it made money, which he did at first, racking up $1.9 billion in profits for Societe Generale in 2007, the judge noted.

During the proceedings both sides admitted to mistakes, but Kerviel insisted his bank superiors knew what he was doing.

The bank says it did not know Kerviel made bets of up to $69 billion—more than the bank’s total market value—on futures contracts on three European equity indices, because his net position appeared unremarkable since he balanced his real trades with fictitious transactions.

Still, an internal report by the bank found managers failed to follow up on 74 different alarms about Kerviel’s activities.
The Associated Press contributed to this report.