'Mr Average' perpetrated biggest trading fraud
JérÃ´me Kerviel, a shy and introverted young city trader, lived on a tree-lined street in Neuilly-sur-Seine, the wealthy Paris suburb dubbed Sarkozyland in honour of its famous political son.
Its yuppies live by Nicolas Sarkozy’s mantra “work more to earn more”. So when a handsome, well-dressed but solitary young banker rose at dawn for work and returned late at night to his one-bedroom flat, neighbours thought his dedication was to be encouraged.
He was never seen with a partner or friends, never spotted at the market or bringing food home, didn’t chat to neighbours, and didn’t take holidays.
The only person who went into the flat was a cleaner once a week.
On Friday night, four plainclothes police officers, accomanpied by a locksmith, entered and searched the apartment, using a ladder to get to a false ceiling just outside the entrance door. They left more than two hours later with two cases, but did not talk to reporters.
“All he did was work,” said one resident outside a neighbouring pooch parlour that sold leather dog beds emblazoned with Park Lane.
Kerviel (31) a junior trader at France’s second biggest bank Société Générale (SocGen), is in hiding after he cost his employers â,¬4,9-billion in the biggest trading fraud by a single person. His staggering scheme of fictitious customer accounts caused five times the damage of rogue trader Nick Leeson who sparked the collapse of Barings bank in 1995.
As billboards announced “France’s most wanted man” and “The â,¬5bn man”, Kerviel’s mother, a retired hairdresser had come to the Paris area from Brittany to be with him in hiding. His father, a blacksmith turned metalwork teacher, had died suddenly two years ago.
Like Leeson, Kerviel was an ambitious working-class lad who moved away from his parent’s fishing town on the Brittany coast to make it big.
But while Leeson reached the top and lived the high life in Singapore, Kerviel, after eight years at SocGen, was a run-of-the mill junior trader whose â,¬100Â 000 annual salary and bonus did not reach the heights of the trading floor pay potential. He made no money from the secret fraud run from his trading desk at the bank’s head office, leaving colleagues and the bank baffled as to what drove him.
The bank said he had family problems, but in his home town locals said he was a serious man with “his head on his shoulders”, questioning the theory put forward by the head of the Bank of France that he was a “genius of fraud”.
He was said to have been given counselling by doctors from the bank, where officials painted a portrait of a troubled man with a fragile mental state. A rumour circulated in the financial district that he may have felt suicidal. SocGen said he had acted alone in his own imaginary world.
There was speculation he could have been trying to prove himself to the bank, to create his own spectacular method of making profits or simply prove the system could be broken. Union officials warned he might have been caught in a quest for a good bonus.
Kerviel hadn’t taken a day’s holiday in the past eight months, knowing that if he left his desk he would be found out. In interviews with bosses at the weekend, he denied losing money. “He seemed perturbed, he didn’t talk about losses. He lives in his world, the world he has created, where he has only made gains,” a colleague told Le Monde.
Colleagues said he seemed to be a shy man who would answer questions with a monosyllabic “yes and no”. He loved sailing and judo, and spoke English—but rarely struck up a conversation at work. “He was an introvert, generally pretty ill at ease,” one former colleague said. “He wasn’t a show-off. He was more a good-looking guy, a bit like Tom Cruise. I thought he was a bit of a crawler with his bosses,” another colleague told Le Parisien.
“If he was a genius, then we didn’t spot it, ” said Dominique Chabert, his university tutor. He was “not a student who made an impression on his year, either in a good or bad way”.
Colette Thomas (79) his downstairs neighbour in Neuilly, told the Guardian she knew him because he loved her pet corgi. “I was the only person in the block he talked to because he would stop to pet my dog. He was tall, very handsome, always immaculately dressed in a suit and tie; he was solitary, kept to himself and was very serious.”
She hadn’t seen him for a month. “He was physically seductive, always elegantly dressed. But he was always alone,” another neighbour said.“I never saw him with a woman, or even with another man, I always saw him alone.”
Kerviel grew up with his brother and parents in Pont l’Abbé, a picturesque town of grey granite houses in western Brittany. He would hang out at the traditional Breton creperies. and work in his school holidays at his mother’s hairdressing salon.
There was disbelief in the town on Friday night. A relative said his mother had left this week to be with her son in the Paris area because “he wasn’t doing well”. His aunt said: “JérÃ´me has done nothing wrong. He was a reserved, serious child. He didn’t pocket a cent, I’m sure of it.”
His father’s death was perhaps the only explanation for what the bank said was “family problems”. But people in the shops, garage and blacksmith’s workshop felt he was being made to carry the can for someone else. In 2001, aged 24 and already working for Sociéte Générale, he supported the local election campaign of mayor Thierry Mavic, for the centre-right UMP party now run by Sarkozy. He was a “poised, calm, thoughtful, young man”, Mavic said, adding that he had “no issues.”
According to the mayor, Kerviel was “interested in public and political life” although he had not run for office.
A UMP member in Pont l’Abbé said it was felt Kerviel would have been an asset on the mayor’s election list of backers. But he wasn’t a party member. Likewise, in Neuilly, the UMP stronghold where Kerviel lived, the party office said he had not joined.
The Kerviels were described by neighbours as a “normal family” who lived in a semi-detached house on the outskirts of town, with an immaculate garden. “There were quiet, we didn’t even know their sons,” said an elderly resident walking past the house with his dog. “I went to the father’s funeral. He was a blacksmith but I think he went bust.”
“We can’t believe all this,” added another neighbour. “I used to go to [his mother’s] hair salon. But I always thought she was a bit proud, you know, so I changed.”
Kerviel’s judo teacher said he had been a helpful teenager. “He came in to train two or three times a week, and he also helped out with classes for kids,” said Philippe Orhant, who last saw his former student 10 years ago. “I liked him a lot, and I had total confidence in him.”
Kerviel did not appear to have been back during the holidays, despite the tempting Atlantic seabaord that brings throngs of tourists.
“I am sure he is very scared,” said Leeson. He said that on Thursday morning when the news broke, Kerviel would also have felt “a perverse sense of relief because he has not been able to bring it to an end himself”.
As his face stares out from every news-stand in France, the country waits for him to turn himself over to police or make a statement in public. Unlike Leeson, who fled Singapore leaving a note on his desk saying “sorry” and was caught at Frankfurt airport, Kerviel is believed to be still in the Paris area with his mother and counsellors. He could face between five and 15 years in prison.
His lawyer said on Friday that she had seen him and that he was “not on the run” but ready to cooperate with police. Paris prosecutors were conducting preliminary investigations on two legal complaints—the bank has accused Kerviel of fraud, and small shareholders in the bank have also lodged a case demanding to know how the fraud could have taken place.
Meanwhile, Ladbrokes were on Friday taking bets on who would play Kerviel in a film, with Kylie Minogue’s ex, Olivier Martinez, the favourite followed by Ewan McGregor, who played Leeson in the 1999 movie Rogue Trader.
Leeson, whose agent said he was charging a fee for media interviews about Kerviel, is a 50/1 outsider to star in his biopic. Online fanclubs on Facebook on Friday lauded Kerviel, with one even recommending him for the Nobel Prize for Economics. Cenk Aras, from Turkey, left the message: “A new hero after Nick Leeson.”
Unanswered questions: Who knew what?
Is the bank telling us everything?
Conspiracy theorists suggest that SocGen is blaming such big losses on a rogue trader in order to cover up something else. Are there wider problems at SocGen which require a scapegoat? The bank announced a â,¬2-billion writedown on Thursday from US subprime losses, but that is small compared with $18-billion at Citigroup and $14-billion at Merrill Lynch.
How could it happen at such a sophisticated bank?
SocGen is not Barings, where managers were unfamiliar with the racy instruments in which Nick Leeson made his losses. SocGen has been at the heart of so-called derivatives trading since these instruments were launched. Kerviel was also trading in fairly straightforward markets with contracts that are widely handled.
Why did the Bank of France not tell the US Federal Reserve about it until Wednesday?
It beggars belief that France’s main regulator did not think to tell the Fed about the fraud for four days. It left the Fed cutting US interest rates sharply without knowing all of the reasons behind the stock market falls. Regulators are meant to exchange information as soon as anything untoward happens. It has left the Fed open to criticism that it cut interest rates too quickly. - Guardian Newspapers Limited 2008