Sudip Kar-Gupta
PARIS, May 24 (bdnews24.com/Reuters) - Societe Generale trader Jerome Kerviel may have had internal help when he built up massive stock market bets that led to the world's worst trading scandal, a report published by the French bank said on Friday.
The report also blamed weak supervision and poor control systems for the rogue trading scandal which shook the world's banking establishment earlier this year.
The internal report said Kerviel, the junior trader blamed by France's second-biggest bank for $7.7 billion in trading losses, may have been helped by an assistant but added there was no conclusive proof of this.
"We have discovered indications of internal collusion involving a trading assistant, a middle office operational agent," said the report.
"Due to the current on-going criminal investigation, we have been unable to question this employee on this subject. The possibility of such internal collusion must therefore be confirmed by the courts," it added.
The bank has consistently said Kerviel acted alone.
The internal report, the second published by SocGen into the debacle, said the unidentified assistant had manually entered a large number of fraudulent transactions done by Kerviel.
It said the assistant registered "several abnormally high intra-monthly provision flows, without having obtained any valid explanations as to their validity."
It added that the assistant had registered a total of almost 15 percent of Kerviel's fictitious trades.
MANAGEMENT BLAMED
On Jan 24, SocGen unveiled 4.9 billion euros ($7.7 billion) of losses which it said were caused by rogue deals carried out by Kerviel.
Kerviel was freed from prison in March after an appeal against his detention but he remains under formal investigation for breach of trust, computer abuse and falsification.
A previous report by SocGen had investigated how Kerviel managed to build up a trading position of 50 billion euros - more than the stock market value of SocGen -- without getting noticed by his managers.
SocGen had highlighted Kerviel's habit of doing rogue deals on warrants with a deferred start date, futures contracts and "forwards" deals using a counterparty within SocGen itself.
The latest report on Friday said Kerviel's direct supervisors lacked the relevant experience for their job.
"The direct supervisor lacked trading experience and was not given a sufficient degree of support in his new role," it added.
The report also said Kerviel's supervisor "demonstrated an inappropriate degree of tolerance in relation to the taking of intraday directional positions".
It said both Kerviel's direct supervisor and the manager above them carried out inadequate reviews of Kerviel's trading activities. The report did not name these individuals.
SocGen did not find out about Kerviel's unauthorized trades until January 18, even though internal reports from the bank showed that Kerviel had in 2007 raised alarms with derivatives exchange Eurex and been the subject of more than 70 "alert" warnings.
The bank's report said Eurex raised an alarm in November when Kerviel bought 6,000 DAX share futures contracts worth 1.2 billion euros, betting on a broad rise in share prices, in just two hours.
The losses from the Kerviel scandal have made SocGen vulnerable to a takeover bid and forced the bank to raise 5.5 billion euros in capital to shore up its finances.
French President Nicolas Sarkozy has also criticized SocGen's executive chairman Daniel Bouton over the affair. Bouton recently gave up his chief executive position to former SocGen finance director Frederic Oudea.
SocGen shares closed down 1.5 percent at 66.75 euros, giving the bank a stock market value of around 31 billion euros.
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