Jerome Kerviel, the rogue trader who lost a $7.1 billion bet at the French bank Société Générale (SocGen), says his primary concern was to benefit the bank.
As he made his way onto the bank’s Delta One desk (“Delta One” referring to a perfectly hedged investment in derivatives) in 2005, he seemed to be doing just that. But then, noticing that he could conduct unauthorized trading if the trade was “intra-day” (entered and exited the same day), he began selling short intra-day trades.
Within a year, he became a star specializing in complex derivatives called “turbo warrants.” Soon he was warned to avoid placing big bets—warnings that he saw as mild admonitions.
Beginning in early 2006, Kerviel made false entries totaling $200 million. His trades at one point accounted for 59% of the earnings on Delta One’s listed-products desk and 27% of the earnings for all of Delta One.
Kerviel himself realized little, if any, personal gain.
By March 2007, Kerviel was deep in thrall to his illicit scheme. His trading set off 93 alerts, by his count, but he assumed that since no one talked with him about it, he had the tacit approval of bank leaders. At best, their blind eye abetted his fraud. At worst, they were complicit.
Early in 2008, the whole thing blew up. It’s illuminating that Kerviel hopes to become a trader again someday.
Two lessons to take here:
1. Anticipate how your operation might be hijacked by a sociopath. After 9/11, SocGen made detailed plans to thwart a terrorist attack but, one bank official says, “We never thought about a single guy who could put so much money at risk.”
2. Keep your own act squeaky clean.
— Adapted from “The Omen,” James B. Stewart, The New Yorker.