The Société Générale (SocGen) is one of the most important French commercial banks. Its original name was “Société Générale pour favoriser le développement du commerce et de l'industrie en France” (General Company to Support the Development of Commerce and Industry in France).
In January 2008, the Société Générale published that an unusual fraud was identified. Sales representative Jérôme Kerviel (Trader) was accused of having arranged deceptive positions and massively crossing his responsibilities in 2007 and 2008. A loss of 5bn resulted from that dealings and was reported in 2008.
Kerviel composed on increasing stocks with forward contracts and exceeded the specified dealing limit by far. He invested much more money than he was allowed, about 50 billion Euros instead of 125 million Euros and simulated the needed coverage of dealings. Therefore Kerviel was blamed for disloyalty, counterfeiting documents and manipulation of computer data. As a experienced trader he knew about the existing company controls and how to avoid them.
Because he was suspected to have known about Kerviel’s machinations, another broker of FIMAT, a subsidiary company of Société-Générale, was arrested, too. Kerviel himself admitted in an interview to having obscured business, but that his manager should have known about this anyway.
Bank director Daniel Bouton refused the allegation that the bank put Kerviel’s manipulation in the limelight to suppress its own deficits.
Kerviel was convicted of fraud, breach of confidence and unauthorized use of computers. The judges saw it proven that Kerviel was not authorized to do business in such an excessive way. He was taken into custody. The French Judges sent him to prison for five years and he was fined to pay 4.9 billion Euros. This judgment exceeded all expectations, even those of the accusing party. Because of this affair, pressure on Société Générale to declare the background increased.
Concerning compliance this case is very significant. The question is who is responsible and where responsibility of enterprise and managers ends and where the guilt of individuals starts. Besides financial business, this case could also be applied to other areas, for example to sales departments of an enterprise. Paragraph 25c KWG (banking law) states that every employee is basically responsible for himself, but that managers must fulfill their control obligations, as well.
Was the judgment too hard? What do you think? If you have an opinion on that or similar cases you are very welcome to share it here in our ARIS community!
Take a look at this article, too: http://www.ariscommunity.com/users/mkli/2008-10-13-door.
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