/ 9 February 2008

Second trader quizzed in French banking scandal

A second trader suspected of involvement in the multibillion-dollar losses at Société Générale bank was taken for questioning by judges on Saturday.

The unnamed broker at Société Générale subsidiary Fimat was seen leaving the headquarters of the police financial brigade aboard an unmarked police van escorted by a car.

Sources familiar with the case said he could be questioned as a witness or placed under formal examination for alleged complicity with rogue trader Jerome Kerviel.

A Paris appeals court on Friday upheld a plea from the state prosecutor that Kerviel be held in custody, 11 days after he was charged by an investigating magistrate but freed on bail.

Police separately held for questioning the Fimat broker, whom they believe may have been aware of illegal deals by Kerviel that led to the huge losses, according to legal sources.

A legal source on Friday said the prosecution would also be asking for the second broker to be held in custody.

Kerviel has insisted he acted alone in the unauthorised trades totalling €50-billion ($73-billion), but sources said some of his deals passed through Fimat and there were indications the second trader was aware of what was going on.

It is the first indication since the €4,82-billion ($7,1-billion) in losses were revealed on January 24 that another person may have been involved.

The court ordered the 31-year-old trader detained “to prevent any communication with possible accomplices or co-offenders” or “[to prevent] pressure on possible witnesses”, said a judicial source.

A lawyer for Société Générale, Jean Viel, said the case seemed to have taken a new turn.

“What is known at the moment is that the two traders were friends, in communication,” he told RTL radio on Saturday.

“But was the [second] trader simply aware of what Jerome Kerviel was doing, or did he assist him or help him?”

Kerviel was first detained on January 26 after Société Générale revealed it had fallen victim to the biggest rogue trading scandal in banking history.

Two days later he was charged with breach of trust, fabricating documents and illegally accessing computers, but was released on bail.

The trader admitted that he had exceeded his authority to make huge wagers on the European derivatives market, falsifying emails and faxes in order to fool the bank’s internal controls.

The trades were unwound by the bank during the major falls in world stocks of January 21 and 22, leading to massive losses and leaving Société Générale dangerously exposed to a take-over bid.

The second broker has not been named, but his lawyer, Jean-David Scemama, said he had no worries about his client’s position.

According to Le Monde newspaper, the broker was taken into custody after Société Générale passed new evidence to police, including transcripts of “chats” on the bank’s internal messaging system.

One message sent by the broker to Kerviel in November 2007 read: “You have done nothing illegal according to the law,” Le Monde reported.

According to Le Monde, Société Générale managers have launched an internal inquiry to work out why no one at Fimat spotted the anomalies.

The French government has blamed Société Générale’s risk-control mechanisms for failing to detect Kerviel’s activities. Prosecutors have said Kerviel sought huge profits to get a better bonus and to improve his own reputation in the hard-driving culture. — AFP