Wednesday, January 30, 2008
French financial police have questioned Jérôme Kerviel, the trader whom Société Générale says lost billions in unauthorized trading bets using its money, at length about his role in the alleged fraud. Following are translations, by the International Herald Tribune, of verbatim excerpts published in Thursday editions of Le Monde, a leading French daily, from the verbal interrogation, which took place in six interviews from Saturday through Monday.His position within the bank JÉRÔME KERVIEL: I was hired by Société Générale in August 2000, in charge of the middle-office…. During the second half of 2004, I was assigned to be assistant to a desk…. Since I was on the same row of desks as the traders, I became more and more interested in the trading activity…. At the beginning of 2005, I was transferred to trading on the desk….
When I was hired by Société Générale [in August 2000], my gross salary was about 35,000 a year plus variable bonuses…. For the year 2007, I haven’t yet been told of the amount of my gross variable yearly revenue,… I was asking for 600,000, they offered me 300,000. To this day, I have not received anything for 2007.
….I understood during my first interview in 2005 that I was far less considered than others because of my degree course and my professional and personal paths…. But I don’t take it personally, I assure you….
Admitting to fake trades. I do not formally question the facts that I am being blamed for. I admit having created fictitious operations, I admit the cancellation of fictitious operations; concerning the unauthorized stand I took on the futures, I am a little less affirmative. My mandate was clear: it consists in ensuring that the market-making of products…. presented no volatility: certificates, warrants, trackers…. It was about earning money for the bank only, and in no way to enrich myself. What is more debatable, I admit, are the ways used to achieve this.
When the coverup began. My first experience in this field goes back to 2005, I took a stand on Allianz stock, making the bet that the market would drop. It just so happens that shortly after the market drops following the London attacks, and there it was, a 500,000 jackpot. This time corresponds more or less to when I started as a trader at Société Générale. I then already have the idea of a deal to cover my position. I have mixed feelings about this because I am proud of the result and altogether surprised. It generates the desire to continue, there is a snowball effect.
….At the end of July , the market snaps because of subprimes and the markets are shook up. My result goes up: 500 million, and I find myself in the same situation as before, in an even bigger way, and do not declare this result which doesn’t appear in the books of Société Générale. I hide this with a fictitious operation….
As of the 31st of December , I no longer have a “pose” and my “mattress” [profits set aside] has gone up to 1.4 billion, still not declared to the bank. At this point, the situation is beyond me and I don’t know how to tell the bank about it, this represents unreported cash of 1.4 billion. So I decided not to declare this to the bank and to cover up this amount, I create an offsetting fictitious operation….
How he played the markets. At the beginning of 2008, I change my position to “long” [the status of a buyer] because I know that the market has evolved a lot, and I see the market coming back up in the next three months, and I am still to this day convinced that it’s going to bounce back up in the next three months…. [It] was only at the closing of the session of the 18th [January 2008] that I was negative. I then think that I will see the evolution of the market when I come back on Monday and count on the market rising on Tuesday. What I couldn’t assume is that Monday I would no longer be an employee of Société Générale.
….In November 2007, on intra-day successive operations, I went back and forth on the DAX [the German stock market index] and seeing it was juicy, took positions from coworkers’ automated machines at the same time and this everyone saw and knew. On that day alone, I made 600,000. My manager then wanted to know the reasons for my investment choices….
How he covered his tracks. Now for the bank, since I am not supposed to have earned this money, I reported a result of only 55 million…. I then provided fake evidence of the recording of these operations, i.e. fake e-mails. I created a fake e-mail with a function that allows me to reuse the heading of an e-mail that is sent to me and change the contents….
The techniques that I used are not sophisticated at all, in my opinion, any correctly executed inspection is able to detect these operations….
Red flags raised. I remain persuaded that they [his supervisors] were aware of these positions and by saying this I inform you of the existence of warnings that got to my hierarchy. In 2007, several questioning e-mails…. were sent to several of my coworkers in order to get explanations…. Another warning could have consisted in calculating the ratio between the ?55 million result that I reported in 2007 and the number of operations I processed. Two requests for information in November 2007, coming from Eurex in Germany, are sent to question the volume of operations I processed…. Following this investigation I am questioned…. and am able to justify myself. At the beginning of January 2008, I max out my credit limit…. I then receive questioning e-mails…. To justify myself, I then create a forged e-mail.
….The fact alone that I didn’t take any days off in 2007 [4 days] should have alerted my supervisors. It’s one of the elementary rules of internal control. A trader who doesn’t take any days off is a trader who doesn’t want to leave his book to another….
I was generating cash, so the signals weren’t that alarming. As long as we earn and it doesn’t show too much, as long as it’s convenient, no one says anything….
INVESTIGATOR: Did anyone comment on the 50 billion that you took during the first fifteen days of January?
A: I had a feeling the market was going to bounce back up.
Q: Caught in the gearing, how did you imagine you would be able to announce this without risking losing your salary?
A: I thought the simple fact of announcing a 1.4 billion profit would satisfy them.
Q:Without imagining the way they were covered up would result in a penalty/sanction?
A: How do you justify a penalty given to a trader who generates a positive result of 1.4 billion?
Q: Let’s suppose that your positions on the futures had been detected by Société Générale,… what would have been your defense?
A: My justifications would have been the same. The hope of the market turning over. However, I’ll say it again, from March to July my supervisors received a number of warnings that makes me think that the size of my stands was known.
Q: Why didn’t the checking services try to stop you?
A: It was in their interest to let me make money….
In the event that anything was detected during this period the whole team would have been fired. Including my higher-ups, one after the other. And that is what’s happening today. In both cases, it was in Société Générale interest to close its eyes. Whether I’m winning or losing….
No matter what, I was risking in one case just as in the other case losing my salary if my commitments were detected. It certainly was in my interest to hide my commitments to my supervisors.