Jerome Kerviel
Overview
Jerome Kerviel is a former Société Générale derivatives trader whose unauthorized trading between 2006 and early 2008 led to reported losses of €4.9 billion for the bank. The case became a high-profile example of rogue trading, weak internal controls, and the legal and institutional fallout that can follow large trading losses.
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Early life and career
- Born January 11, 1977; studied at the University of Nantes (bachelor’s) and University of Lyon (master’s in finance).
- Joined Société Générale in 2000. Began in compliance, moved in 2005 to a junior trader role working with equity derivatives.
- His trading role focused on arbitrage between equity derivatives and the underlying stock prices.
What are derivatives?
Derivatives are financial contracts whose value is linked to an underlying asset (stocks, indices, commodities, etc.). Common types include futures, options, and swaps. Traders typically offset risk by taking opposing positions (for example, balancing a long position with a corresponding short) to limit exposure.
The unauthorized trading scheme
- Kerviel used his familiarity with the bank’s back-office processes to create fake offsetting trades in the bank’s systems and logs. These phantom positions made one-sided bets appear hedged and avoided detection by automated controls.
- Early profitable positions encouraged continued activity. To hide gains and avoid scrutiny, he later created intentionally losing trades to offset earlier profits on the books.
- The unauthorized exposure grew to tens of billions of euros of nominal positions; when management discovered the activity in January 2008, the bank moved to unwind the positions. Falling markets amplified the realized losses.
Discovery and losses
- Société Générale estimated the trading losses at €4.9 billion after closing the positions.
- Kerviel has maintained that managers were aware of, or tacitly tolerated, his activity while it was profitable. In 2016 an appeals court in Versailles characterized the situation as resulting from “managerial choices” rather than merely “occasional negligence.”
Legal consequences and aftermath
- Convicted in French courts on charges including breach of trust.
- Initially sentenced to three years in prison and ordered to repay €4.9 billion.
- Served five months in prison (released in 2014).
- In 2016 the damages were drastically reduced; the required payment was cut to €1 million.
- Kerviel is not believed to have personally profited substantially from the trading losses and later worked as an IT consultant.
Assessments and context
- Opinions differ on Kerviel’s abilities: some described him as a “computer genius,” while others saw him as an average student and not a standout trader.
- The case highlights failures in internal controls, oversight, and managerial supervision at a large bank, as well as the risks posed by concentrated, unauthorized positions.
- Kerviel’s case is often cited alongside other rogue-trader incidents to illustrate how individual actions and organizational shortcomings can combine to produce large losses.
Quick FAQs
- What is a rogue trader? Someone who trades on behalf of a firm or clients in ways that violate policy and risk limits, often taking speculative, high-risk positions without authorization.
- How large were the losses? Société Générale reported €4.9 billion in losses from Kerviel’s trades.
- What happened to Kerviel afterward? He was convicted, served part of a sentence, had damages later reduced to €1 million, and has worked in IT consulting.
Conclusion
The Jerome Kerviel affair remains a landmark case in modern financial history: an example of how unauthorized trading, combined with inadequate oversight, can lead to catastrophic losses and long legal battles. It prompted scrutiny of bank controls and sparked debate about individual culpability versus systemic managerial responsibility.