Accused French rogue trader Jerome Kerviel walked free after judges placed him under formal investigation on Monday for his role in $7-billion of losses at Société Générale but stopped short of charging him with fraud.
Shares in the French bank took a battering as allegations emerged that a board member was guilty of insider trading related to the scandal.
Kerviel was freed on bail after being placed under formal investigation for “breach of trust”, “falsifying and using falsified documents,” and “breaching IT procedures”, said his lawyer, Elisabeth Meyer.
Judges rejected a bid to charge Kerviel, accused by the French banking giant of losing €4,9-billion ($7,15-billion dollars), with the more serious crimes of “gross breach of trust” and “attempted fraud”.
“It’s a great victory,” Meyer said, “but it’s only justice being done.”
Kerviel (31), who had been in police custody for more than 48 hours, walked free on Monday after being told not to communicate with Société Générale employees or to work in any financial-services capacity until the case was resolved.
But no sooner had the “rogue trader” handed over his passport — which turned out to have expired anyway — than prosecutors lodged an appeal against his release.
The launching of a formal investigation in France does not automatically mean that a trial will follow.
If found guilty of breach of trust, Kerviel would face a maximum sentence of three years in prison and a fine of €370 000, less than half of what he might have faced if fraud charges had been laid against him.
President Nicolas Sarkozy had earlier warned there must be consequences for those responsible for the scandal, with chairperson Daniel Bouton, whose offer of resignation was rejected last week, firmly in the line of fire.
“When there is an event of this nature, it cannot remain without consequences in terms of responsibility,” Sarkozy said.
Société Générale shares had already plunged 7% to €68,67 in [Monday] morning trading, its lowest level since mid-2004.
Bouton went to London in a bid to shore up investor support for a proposed €5,5-billion capital increase to cover the trading losses and €2-billion of losses in the United States subprime market.
But about 100 Société Générale shareholders filed suit for insider trading and manipulating share prices after market regulator AMF revealed that a supervisory board member had sold shares worth €85,7-million on January 9.
Société Générale’s stock has now lost about 50% of its value since May last year and 22% since the close on January 9.
The suit by members of the Association of Small Shareholders (APPAC) targets American Robert A Day and two foundations linked to him, said lawyer Frederik-Karel Canoy.
Prosecutor Jean-Claude Marin said Kerviel had admitted during two days of questioning that “he carried out a certain number of acts to conceal reckless positions on the markets”, but did not try to profit personally from the financial deals.
“He wanted to be seen as an exceptional trader, an astute market player,” said Marin, adding that he was attracted by the prospect of a €300 000 bonus.
“He went beyond what he was authorised to do on the market, it is true, but he wasn’t trying to plunder the bank.”
During questioning, Kerviel claimed that other traders had resorted to the same manoeuvres, although not on the same scale.
The trader turned himself in to police on Saturday, since when Kerviel’s lawyers have accused the bank of trying to “create a smokescreen” to cover up wider losses from the US subprime mortgage crisis.
They argue Société Générale brought the losses on itself by hastily dumping what were in essence stock-market bets.
Kerviel had held positions worth about €50-billion when irregularities were first detected — well in excess of the bank’s market value of €35,9-billion and its shareholder funds.
Within days, Société Générale moved to unwind his deals, incurring losses of €4,9-billion.
According to Marin, Société Générale challenged Kerviel several times about risky operations, and each time he produced fictitious documents to justify himself.
The trader had bought futures in three European indices — the Eurostoxx, the DAX in Frankfurt and the FTSE in London — effectively betting on the future direction of the stock market. — AFP