Guess we might want to reallocate blame for that $5 billion trading loss at Societe Generale

Sometimes it's complicated. Photo courtesy of Adobe Stock.
Sometimes it’s complicated. Photo courtesy of Adobe Stock.

One thing I’ve learned while being in leadership at my church is that a conflict that appears simple to outsiders is usually far more complicated and messy and ugly than it appears, with blame for a conflict sometimes belonging to the party that appears innocent.

I’m slowly catching on that maybe that idea sometimes applies to massive financial fiascos. (Yeah, yeah, I know. I usually catch on really slow.)

Who is at fault?

Back in January 2008 a trader, Jérôme Kerviel, engaged in €50B of unauthorized trades for Société Générale and hid his trades. That’s fifty billion euros. He admits to making fake entries to hide his admittedly unauthorized trades.

Unwinding the trades cost the bank €4.9B.

I recall at the time that the story line was he was a rogue, a scoundrel, etc., doing all this by himself, etc., single handedly pulling off a huge scam, etc, cleverly wending his way between those tight internal controls, etc.

Criminal sentence

Previously, Mr. Kerviel was tried and convicted on criminal charges. His initial sentence was five years, which was reduced to two years (I think it was 2 but maybe was 3).

He served five months in prison, according to the following article.

Wrongful termination

Well, multiple parts of the French judicial system are saying that allocating the blame is a bit more complicated.

Back in June I mentioned Societe Generale and their trading fiasco is back in the news. Oh, firing someone who lost $5 billion in unauthorized trades is a wrongful termination.

The French labor panel ruled Mr. Kerviel was due his bonus from 2007 of €300,000 and another €150,000 for unfair dismissal. That is €450,000, or about US$511,000.

In the U.S. we would call that wrongful termination. He won a wrongful termination claim.

Civil judgment slashed by over 99%

At trial, he was also fined €4.9B, as in five billion, which is the amount of the losses the bank claimed. That would be about US$5.49B.

Five and a half billion dollars.

That would suggest the court system has allocated 100% of the blame to Mr. Kerviel.

Well, the New York Times explains Ex-Societe Generale Trader’s Huge Fine Is Cut to 1 Million Euros. Yes, the fine was cut from €4.9B to  €0.001B.

That is a drop of about 99.98%.

Instead of $5,490.0M, he only owes the bank $1.1M. That’s 1 million bucks instead of 5,500 million.

The appeals court determined that Societe Generale had most of the responsibility for the loss due to their weak internal control and oversight. According to an NYT quote of the court ruling, the court determined

“the eminently deficient nature of Société Générale’s control systems, “

was heavily responsible since it

“created an elevated degree of vulnerability.”

Based on dollar amount, I think that means the court is declaring the bank has about 99.98% of the responsibly for the loss.

The tax authorities are expected to use the appeals court judgment as justification to reclaim about €2.2B of tax credit the bank claimed as a result of the loss.

Mr. Kerviel’s attorney says his client still has three claims pending against the bank.

Sometimes life is a whole lot more complicated than the first few rounds of newspaper reports claim. Or even what the first few years of coverage suggests.

(Hat tip to Gary Zeune, of The Pros & The Cons, for pointing me to the article.)

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