Société Générale (A):
The Rogue Trader

Jérôme Kerviel and his lawyer, Elisabeth Meyer
Photo © Agence France-Presse

01/2011-5613

This case was written by Mark Hunter, Adjunct Professor, and N. Craig Smith, INSEAD Chair in Ethics and Social Responsibility. It is intended to be used as a basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. Copyright © 2011 INSEAD
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capital-to-assets fell too low. Often the problem was a difference in values between the time a trade was made and the time it was finalised. ACFI would identify and correct the discrepancy to reflect the final value. A controller identified in reports only as “Agent 6”, working in the Accounting and Regulatory Reporting sub-division of ACFI, noticed a problem with the Cooke ratio for eight trades that originated from a trading desk called Delta One early in January 2008. The desk’s main product was “turbo warrants”, which are a form of “barrier” options. Such options become active or inactive when a price barrier is breached. The barrier can be above or below the spot price of the option. The effect is to provide the insurance value of an option (one sets a limit to the price and hence to one’s risks) while paying less of a premium, because what one buys is the barrier, and not an ordinary option to buy or sell at a given price. From another, more basic perspective, Delta One’s trade in turbo warrants was a form of arbitrage. Arbitraging exists because markets are somewhat inefficient, so identical or highly similar securities can be priced differently on different exchanges. Thus by moving securities from one market to another, an alert trader can make essentially risk-free profits. The profits will generally be small, unless the volumes exchanged are massive. But on the Delta One desk, traders typically placed sums well under €1 million, and their combined risk, including hedges, could not exceed €125 million.6 GEDS aimed at having €115 billion of assets under management by 2010,7 so this was small beer.

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But Agent 6 did not give up, and sought help from her hierarchy. The matter dragged on past 20:30 that night, then all through the next day, as one controller and manager after another – two dozen in all – sought to clarify Kerviel’s business in a way that would satisfy regulations. derivatives based on interest rates and currencies. CIB was also the number one stock and bond trader on the Euronext market, where its expertise in programme trading was widely recognised. Société Générale, General Inspection Services, “Mission Green: Summary Report.” 20 May 2008, p. 29. Hereafter called Mission Green. Document de Référence 2008, p. 5. The name is French for “annual report.” All such documents cited here refer to Société Générale. All details concerning the discovery of Kerviel’s actions are drawn from Mission Green, pp. 31-34.

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Agent 6 called a colleague in the GEDS sub-division that managed trading, sales and financial engineering for an explanation. Agent 6 was told that the trades had been cancelled a week ago, and was shown e-mails from the trader, Jérôme Kerviel, to prove it. But she could find no other evidence to confirm the cancellation. Pressed for further details, Kerviel, a very busy fellow in his early 30s, gave answers that Agent 6 could not understand. That was not unusual: ACFI personnel were often young and lacked market knowledge, especially compared to traders. That was one reason they typically deferred to traders when tension arose.

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Yet the sums that attracted the controller’s attention were, she said, “hyper significant” – a total of €1.5 billion.8 Even more worrisome, there were no apparent counterparties to the trades – the opposing buy or sell side of the deal – meaning that the bet might be unhedged. Delta One traders were not supposed to make such trades. For example, if a trader bet that a given security would rise, he or she must also bet that a similar security would fall; thus the risk for SocGen was normally limited to the small difference in price between the two securities. This time, however, the exposure might be total.

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positions and raise new capital. Though SocGen was legally obliged to immediately inform the markets of events that could affect its stock price, Prada believed “it would be very dangerous to announce this fraud without also showing an appropriate response”. Prada implied that not only SocGen but also the French banking system was threatened. Invoking an exception to the law, he granted Bouton three days to act before the stock exchanges were informed. It was a “heavy secret” to carry, Prada said later.14 In one way it was no secret at all. Over the next three days, SocGen accounted for between 5.7% and 8.1% of the total volume in futures indexes on the EUROSTOXX and DAX exchanges as Kerviel’s stakes were dumped.15 Because “every sale of a title on a market has… a lowering effect on its price”,16 SocGen would be selling at a loss. It did not help that the DAX index had already fallen by nearly 10% in the weeks before SocGen dumped Kerviel’s positions. As the International Herald Tribune commented, “The timing could hardly have been worse.”17 After subtracting €1.4 billion in profits that Kerviel’s unauthorised trades had made for the bank in 2007, SocGen’s losses were €4.9 billion.18 To cover the losses, J.P. Morgan and Morgan Stanley agreed to provide €5.5 billion in new capital.

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Société Générale : la Fed et la BCE prévenues avant l'annonce des pertes http://www.challenges.fr/actualites/business/20080130.CHA6804/societe_generale_noyer_met_en_cause_l es_controles.html Christine Lagarde, “Rapport au Premier ministre concernant les enseignements à tirer des événements récemment intervenus à la Société Générale”. Ministry of Finances, 8 February 2008, p. 4. Hereafter called “Rapport Lagarde”. Ibid. Nicola Clark and David Jolly, “Société Générale loses $7 billion in trading fraud”. International Herald Tribune, 24 January 2008. France’s official Commission bancaire (banking commission) noted in July 2008 that in SocGen’s statements, “the establishment speaks of a loss of €4.9 billion, which corresponds to the aggregation of the loss of 2008 with the profits realised in 2007 (€1.4 billion euros) on the fraudulent positions on futures of Jérôme Kerviel". This report is not indexed on the site of the commission at www.banque-france.fr. It is quoted from Nicolas Cordi, “Qui a perdu 4,9 milliards d'euros à la Société Générale?”. See www.libération.fr, Nov. 19 2008, at http://cordonsbourse.blogs.liberation.fr/cori/2008/11/dernireauditio.html. Rapport Lagarde, p. 3. Daniel Bouton, open letter to the public, 24 January 2008, quoted from Agence News Press.

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By 23 January, SocGen was in control of the situation. The Minister of the Economy, Christine Lagarde, and President Nicolas Sarkozy were informed at 08:00.19 Christian Noyer informed his counterparts at the European Central Bank and the US Federal Reserve Bank. Finally, Bouton revealed the affair in a public letter and a newspaper interview on January 24: “The management of Société Générale has discovered an internal fraud of major size [that was based on] extremely sophisticated and varied techniques.” He said the holes in SocGen’s controls had been identified and fixed, and that “I have put an end to the functions of the managers, including executives, responsible for the supervision and control of these operations.” The loss of €4.9 billion would “not stop the bank from earning a net profit for 2007”. New capital would guarantee that SocGen “will regain the profitable growth which has characterised it for many years”. Bouton also revealed that further subprime losses amounted to €2 billion.20

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“There is no ceiling but the point is that we have not yet succeeded in having enough elevators to bring the non-French people to the top executive positions.”23 Nationalisation had bequeathed SocGen an internal culture modelled on the French State, where leadership is the province of an elite meritocracy. The elite’s core consisted of graduates of a very few state-run grandes écoles (literally “great schools”).24 The greatest of all was the National Administration School (known by its French acronym, ENA, which admitted only 90 French students and 40 foreigners each year.25 From 1984 to 2007, French Prime Ministers had been ENA graduates in all but four years.

SocGen’s Strategic Dilemma

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Jennifer Morris, “France's banking model.” Euromoney, April 2003, pp. 42-43. In French, grandes écoles. Besides the Ecole Nationale d’Administration (ENA), the most famous and influential is the Ecole Polytechnique of Paris, founded by Napoleon. Source: ENA. See http://www.ena.fr/index.php?page=formation/initiale/statistiques Daniel Bouton, Président du groupe de travail, “Pour un meilleur gouvernement des entreprises cotées.” Medef, Sept. 23 2002, p. 2. Originally the Compagnie Financière de Paris et des Pays-Bas (Finance Corporation of Paris and the Netherlands), later renamed the Compagnie Financière de Paribas, and finally Paribas just before its takeover. Jennifer Morris, “The Crisis of Identity at Société Générale”, Euromoney, April 2003, p. 36-41.

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“SocGen is big enough to be important and to count among the core group of major European companies but not of the size to play with the big boys... [so] Bouton has only two options: eat or be eaten.”28

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Bouton’s first great strategic move, an attempt to amicably acquire the Paribas27 bank, led to a hostile takeover attack on both by the Banque Nationale de Paris (BNP). Bouton managed to keep SocGen intact, but Paribas was seized by BNP. The event made it cruelly evident that SocGen lacked scale. Euromoney magazine warned in 2003:

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Bouton, who was born in Paris in 1950, graduated from ENA at the young age of 23 and became the State’s youngest Inspector of Finances. By 1988 he was Director of the Budget, the highest non-political job in the powerful Ministry of the Budget. He joined SocGen in 1991 and became executive vice president for investment banking and risk management in 1993, under the presidency of Marc Viénot, an executive with an unmatched reputation for integrity and prudence. When Bouton succeeded Viénot as CEO and chairman of SocGen in 1997, France was just emerging from a wave of corruption cases that culminated in the suicide of Prime Minister Pierre Bérégovoy in 1993, and the indictment (and later conviction) of former Elf CEO, Loïk Le Floch-Prigent, on embezzlement charges. Legislators responded by creating new categories of business crime. Bouton agreed that a liberal economic system “cannot tolerate fraud”, but said it was an “illusion” to imagine that “the multiplication and aggravation of penal sanctions can constitute an effective protection against the fundamental risks of strategic error or poor management.”26 The French elite had always taken pride in serving the state above private interests; now members like Bouton were seeking to protect the private sector from the tradition of centralised economic control.

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Simultaneously, SocGen took “a more aggressive underwriting approach”, said Mustier.34 Its deals involved increasingly sophisticated calculations of value and risk, including the risk that bonds or derivative products might not sell. As Mustier said, the strategy required “complete confidence” in the ability of his traders to find buyers.35 That confidence was clearly justified. SGCIB became the bank’s biggest money maker. Revenues increased steadily, from €4.7 billion to €5.7 billion, and then to €6.9 billion in 2006. The division’s profits rose at a rate of 26% per annum, to reach €2.34 billion in 2006.36 SGCIB’s proprietary trading played a growing role, attaining €3.05 billion in revenues and €577 million in profits for 2006.37 In comparison, profits from SocGen’s traditional retail banking operations in France and abroad were €1.82 billion that year. (See Exhibit 3 for financial data on SocGen over the past five years).

SocGen’s Culture is Transformed

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David Lanchner, “SG - picking fights it can win”. Euroweek 2 February 2007, pp.14-15. Op. cit. “SG - picking fights it can win.” Op. cit. Document de reference 2006. Document de Reférence 2008, p. 41. In 2007, four out of five of SocGen’s 135,000 employees worked in retail banking, and less than 9% worked at SGCIB (Document de Reférence 2008, p. 107). Note that the roughly 12,000 employees of SGCIB included the biggest equity derivatives shop in the world – an indication of how small and exclusive this area of finance was. Another is that in the US, the latest (May 2008) data from the Bureau of Labor Statistics on “management occupations” showed a total of 44,760 “financial managers” for the national economy. Neither the BLS nor other national official sources lists traders as a separate job category. (See http://stats.bls.gov/oes/current/naics4_551100.htm). Nor does the BLS apparently use the same definition of financial managers as the industry. At the end of October 2008, American Express alone announced that it was laying off 7,000 managers worldwide. Up to that date, according to Corinne Ramey and Helen Kennedy in the New York Daily News (Oct. 31, 2008), US financial industry layoffs in the crisis included Bank of America (7,500), Bear Stearns (7,000), Citigroup (9,000), Lehman Brothers (1,400), Merrill Lynch (4,500) and Morgan Stanley (2,500). It is not known how many of these layoffs were derivatives traders. Cited by Bertrand Rothé “Chronique d’un scandale financier; Mais que faisaient les fameux inspecteurs de la Société Générale?”. www.bakchich.info, 25 January 2008. Jérôme Kerviel, le «cash machine» qui se croyait tout permis Une expertise psychologique révèle quel était l'état d'esprit de l'ancien trader de la Société générale, lorsqu'il a perdu 5 milliards d'euros sur les marchés. LIBERATION.FR : jeudi 26 juin 2008

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Power at SocGen had always resided in the accounting and control functions built to oversee the dispersed operations of retail banking.38 Several members of the executive committee were alumni of SocGen’s General Inspection service. In 2006, Bouton called it “the backbone of our rigour, organisation and values”.39 But increasingly the most talented young people in the bank were traders, not auditors. The best traders came from the Ecole Polytechnique, where France’s greatest scholar of equity derivatives, Nicole El Karoui, was on the faculty. As with Mustier, SocGen was often their first job. But unlike Bouton’s generation, they did not regard becoming inspectors of finance as a necessary career step. Some traders in SGCIB earned millions of euros in bonuses every year. Jérôme Kerviel saw that when a trader made a rich deal, “They call [him or her] a cash machine, a star.” 40

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After joining the Delta One desk in 2004, Kerviel earned €100,000 in salary and bonuses.45 It was four times the median salary of a teacher in France, like his father,46 but it was low for a trader, considering the workload. Kerviel lived in a small apartment in a wealthy suburb of Paris. As the London Times put it, despite his ambitions, he resembled “an average guy” with “mediocre abilities and limited experience”.47

In November 2004, the manager of Kerviel’s desk at Delta One had noticed that he was taking small but unauthorised long and short positions on index futures and stocks. Kerviel’s plays were “tolerated” by his manager, but there were discussions between the two.48 Kerviel was verbally reprimanded in July 2005 when his manager discovered an unhedged long bet of €10 million on Allianz stock. But the manager did not notice that Kerviel had entered a fictitious trade for the same amount into the front office system. That was Kerviel’s solution to a double problem: how to conceal his trades, and how to conceal the earnings they generated until he was ready to declare them.

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Another of Kerviel’s favourite concealment techniques, which he used at least 115 times, was to enter pairs of fictitious reverse transactions – a purchase and a sale – for the same asset at different prices. This allowed him to show a virtual loss that “cancelled” the earnings from his real trades. Thus on 1 March 2007, he recorded the purchase of 2,266,500 shares of a certain
According to Mustier, cited in numerous press reports. See http://www.worldsalaries.org/france.shtml. The median salary for French teachers is €1900/month, with a 13th month for most. Adam Sage, “He's not a Machiavellian genius. He's just an average kind of guy”. The Times, 26 January 2008. Mission Green, p. 4. Ibid., p. 1. Ibid., p. 7.

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This method depended on close timing, and so Kerviel rarely left his desk. In the summer of 2006, while most of Delta One was on vacation, Kerviel was in Paris, making unauthorised long and short bets that added up to €140 million, then unwinding them. Two different desk managers formally noted Kerviel’s “reluctance to take vacations” on four occasions in 20067. This was a possible sign that Kerviel was concerned about an audit in his absence, but the information had “no concrete effect” on his hierarchical superiors.50

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Before long, that experiment became a system. Over the next three years, on at least 947 occasions, Kerviel sought to eliminate traces of the market risk that his unhedged trades created. Normally, the overall amount of risk would be detected by SocGen’s risk management IT systems, but Kerviel created fictitious transactions that balanced the risk monitored by the system. In other words, he made it look as if he were hedging his bets. Kerviel entered his fictitious trades into the system under titles that indicated the counterparty of the trade hadn’t been classified, or that parameters such as the dates of the trade hadn’t been determined.49 By doing so, he delayed settlement of these fictions. Next, Kerviel cancelled his fictitious trades before they were verified or monitored by the middle or back offices, and replaced them with new ones. Thus he stayed below SocGen’s risk detection radar.

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How Kerviel Worked

could have been liable to identify the fraud”, according to SocGen’s internal audit of the affair.55 But there was no investigation. No one saw the accelerating pattern of Kerviel’s scheme, because the same controller hardly ever dealt with Kerviel twice, and controllers in different bureaus did not share information about alerts. Most important, according to the SocGen internal investigation, “Operators did not systematically extend their controls beyond what was called for by procedures.”56 Instead, the bureau involved would typically “attribute the cause of the anomalies to recurring problems in recording transactions in computer systems. They [would] just notify Kerviel and his immediate superiors of the exceeding of the limit and make sure it return[ed] to normal.”57

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Mission Green, p. 56. Ibid. Mission Green, p. 65. Mission Green, pp. 58, 7. Op. cit., “Jérôme Kerviel, le «cash machine» qui se croyait tout permis” Heather Smith, “Rogue trader's boss applies to join SocGen suit”. Bloomberg, April 21 2008. Mission Green, p. 8. Mission Green, p. 46. Rahul Shah, “Société Générale.” Bear, Stearns International Limited – European Equity Research, 8 November 2007.

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At the end of 2007, Kerviel liquidated his positions and reported earnings on his trades of €43 million to his managers. This was a small percentage of the €1.4 billion profits generated by his unauthorised trades, but it was still more than six times his €7 million earnings in 2006.62 The earnings would ordinarily be used to calculate his year-end bonus (which Kerviel never received). The portion of his declared earnings that resulted from proprietary trading – the trades that a bank undertakes with its own capital – was €25 million, which could appear exemplary at a moment when “proprietary trading losses dragged down the performance of the Corporate & Investment Banking division.”63 Moreover, Kerviel generated nearly 27% of the total earnings of Delta One. That made him the 15th-best among the 143 traders working on the 10 desks of the Arbitrages unit of the Global Equity and Derivatives Solutions division

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In November 2007, someone outside SocGen wondered what Kerviel was up to. The EUREX exchange e-mailed Cordelle twice to question Kerviel’s purchase of €1.2 billion worth of DAX futures contracts in two hours. Cordelle later said he “received 200 to 300 e-mails each day”, and had not seen the details of EUREX’s warning.60 Kerviel provided an explanation and his boss proposed a conference call to discuss the matter, but EUREX never replied.61 The matter ended there.

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However, at 13 different times someone called Kerviel to get an explanation. Usually, whatever he said was accepted, but in the spring of 2007 two controllers complained to Cordelle that Kerviel’s explanations were “incoherent”. Cordelle took no action.58 Kerviel later said that “during four months, tons of alerts were sent to my bosses to warn of fictitious operations. The fact that no one came to talk to me legitimated my position a little.”59 (See Exhibit 5 for specific examples of these alerts.)

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In the online world of blogs and forums, opinion ran sharply against SocGen. The daily France Soir commented: “Kerviel now embodies the scapegoat of a pitiless system.”69 A webzine called “Save Kerviel” denounced his “unprecedented media lynching”.70 A message to a “true crime” forum argued: “I would not be surprised if these ‘rogue’ traders have accidentally made money in the past, but it was covered up when profits were discovered. In that case, far from going to jail, the rogue trader might even get a bonus.”71 Meyer agreed:

“If Jérôme’s operations were still profitable, would they have filed charges? My position is that he did his work [and] no one stopped him. The normal means at SocGen’s disposition allowed the bank and his superiors to know his activities precisely. Someone said, ‘He was on a highway where the speed limit is 90, and he drove at 200.’ Sure, but he passed by the gendarmes dozens of times, and they didn’t stop him.”

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Alice Mahlberg et Sébastien Cometti, “SocGen - Dans la peau de Jérôme Kerviel”. France Soir, 22 March 2008, via http://www.francesoir.fr/enquete/2008/03/22/socgen-dans-la-peau-de-Jérôme-kerviel.html. 70 http://sauvezkerviel.canalblog.com/ 71 The message is from raylopez99 on the alt.true-crime forum, January 26 2008. 72 Ashley Seager, “Eurozone Northern Rock-style bank failure 'would cause chaos'”. Guardian.co.uk, 7 February 2008. 73 Anon. “Colère et incompréhension des politiques”. Le Monde, 26 January 2008. 74 Rapport Lagarde, p. 6. 75 The Bank’s auditors had recommended in March 2007 that SocGen pay more attention to counterparty risks, to no avail. Rapport Lagarde, p. 8. 76 Rapport Lagarde, p. 10.

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France’s politicians gained in power from the crisis. Prime Minister François Fillon, besieged by reporters at Davos, promised to ensure “greater transparency” in financial markets.”73 Minister of the Economy Christine Lagarde quickly issued a report which warned that in cases involving “the stability of the financial system,” the Government must play a greater role.74 She noted that the Bank of France had made risk management recommendations to SocGen that had not been followed,75 and that market actors needed more “independent” scrutiny; otherwise, the Government must step in.76 She also called for heavier legal sanctions

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A widening circle of actors in the public and private sectors now took action. The Bank of France and Financial Markets Authority began investigations. At the European Central Bank, President Jean-Claude Trichet called on all banks to reinforce their internal controls. SocGen’s major French rival, BNP Paribas, publicly considered – then rejected – the possibility of a takeover bid for SocGen. EU Internal Markets Commissioner Charles McCreevy disgustedly told the Society of Business Economists: “It is inexcusable that the entire market value of a financial institution can be placed at risk by such abject carelessness on the part of a leading European bank.”72 SocGen was isolated.

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Pressure from Peers and Politicians

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"I wonder who you take us for. Who do you think will believe that someone can do such things [as Kerviel did] with impunity? Either it suited the hierarchy of Société Générale, or the controls are worthless. You speculated, period. You’re the one we’re wondering about, and Kerviel is just a clown, whom it would have been easy to stop if you wanted to or if you really had proper controls!”82 The revolt did not stop there: around one-fourth of shareholders voted against two management propositions to distribute stock options.83 Frédéric-Karel Canoy, the lawyer for the Association of Small Shareholders who had filed a lawsuit against SocGen for negligence, explained that for many of his clients the affair threatened poverty in their old age: “In France, liberal professions don’t allow you to have a decent retirement, unlike teachers and salaried employees. You build a portfolio of shares to complete your retirement. Up to now, the shares of SocGen always rose.”84

Kerviel on the Defensive and the Offensive

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Anon., “Les dirigeants de la Société Générale hués par leurs actionnaires”. Agence France Presse, May 27 2008. The vote was reported on SocGen’s website. See: http://www.socgen.com/sg/socgen/pid/174/context/SC/lang/fr/object/rubriqueSC/id/919/rubid/919/nodocty pe/0.htm Interview, June 5, 2008. Anon., “SocGen: sept salariés ont quitté la banque après l'affaire Kerviel (Bouton)”. Agence France Presse, 27 May 2008. Massimo Prandi, “La Société Générale sous le coup d’une ‘class action’ aux Etats-Unis.’ LesEchos.fr, 11 December 2008 (via http://www.lesechos.fr/info/finance/4807895.htm).

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Meanwhile, the immense stakes of the affair had forced prosecutors to be particularly scrupulous, at least where Kerviel was concerned. He was incarcerated without bail on 8 February 2008, under a French law that aims to stop suspects from conspiring with or pressuring witnesses. The media had announced that Kerviel had an “accomplice”. His communications consultant, Christian Reille, protested: “Sending him to prison is an injustice. You can’t tell public opinion that someone who answers questions and cooperates with the

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On 17 October, a class action shareholder lawsuit was filed against SocGen in the state of New York, charging that the bank had concealed losses due to both Kerviel and the subprime crisis. The bank said it was taking the lawsuit seriously but believed that it was without merit.86 At the end of the year, SocGen’s stock was trading at around €34 per share; it had traded at over €90 in January 2008. Its closest rival, BNP Paribas, was trading at around €30, down from the year’s high of €75. By this measure, SocGen was doing roughly as well in the markets as its competitors in the midst of an unprecedented global crisis.

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On May 30, Mustier resigned from his post. Previously, as a result of the affair, two employees – Kerviel and his trading assistant – had been fired for “disciplinary reasons”, three for “professional insufficiency” (including Cordelle), and two others had resigned.85 Mustier remained with the bank in an undisclosed position. (See Exhibit 7 for a chronological summary.)

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Exhibit 1 Structure of SGCIB’s Global Equity and Derivatives Solutions (GEDS) Unit

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Source: Mission Green report, p. 13

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Exhibit 3 Selected Financial Data for SocGen, 2003-7
GROUP CONSOLIDATED FIGURES Results (in millions of euros) Net banking income Operating income (excluding loss From Kerviel’s trading) Operating income (including loss From Kerviel’s trading) Net income before minority interests Net income French Retail Banking International Retail Banking Financial Services Global Investment Management & Services Corporate and Investment Banking Corporate Centre and other Activity (in billions of euros) Total assets and liabilities Customer loans Customer deposits Assets under management Equity (in billions of euros) Group shareholders’ equity Total consolidated equity 21,923 6,713 1,802 1,604 947 1,375 686 600 652 (2,221) (145) 22,417 8,035 19,166 16,390 6,562 4,760 15,637 3,843 2007 2006 2005 2004 2003

5,785 5,221 471 1,344 52

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Average headcount (thousands)

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Source: Document de Référence 2008

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4,916 1,059 3,623 942 2,755 878 4,402 3,281 258 2,492 214 386 1,453 460 376 385 285 290 1,841 203 1,453 (133) 1,052 (227) 835 227 223 386 601 208 213 315 539 178 160 284 23 27 100 93 90 18 21 17 21
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Exhibit 5 Selected Alerts to Kerviel’s Activities and Results of the Alerts

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Source: Mission Green Report, p. 56.

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Exhibit 7 Summary Chronology of the Affair93
Jan. 18-20: A controller’s persistent queries lead to the discovery that Jérôme Kerviel’s unhedged long positions total €50 billion. Jan. 21: SocGen obtains three days from France’s Financial Markets Authority to quietly liquidate Kerviel’s positions. Equity markets are already plunging. Jan. 24: SocGen announces it has taken losses of €4.9 billion from the “fraudulent” activities of a trader, but the bank is not in danger. The French government launches an investigation. Kerviel is falsely rumoured to be missing. He is soon taken into custody, questioned and released.

Jan. 28: SocGen CEO Daniel Bouton denies that Kerviel is being persecuted to distract attention from SocGen’s subprime losses in the US. Jan. 30: The SocGen board refuses Bouton’s resignation. The following day BNP Paribas confirms it is considering a takeover bid. The idea is later abandoned. Feb. 5: Kerviel suggests he is being made into a “scapegoat” by SocGen. He is jailed three days later, despite cooperating with police and prosecutors. Feb. 11: SocGen raises its capital by €5.5 billion. Bouton subscribes €1.5 million. Feb. 21: SocGen reports a 4Q 2007 loss of €3.4 billion.

Feb. 26: French president Nicolas Sarkozy suggests that it is “abnormal” and unacceptable for Bouton to deny responsibility for the crisis. March 6: Sarkozy says France will defend SocGen against a foreign takeover bid. April 17: Daniel Bouton steps down as president of SocGen, remains chairman. May 23: An internal SocGen investigation, the “Mission Green” report, discloses failures in supervision and control. May 27: The annual shareholders’ meeting is a disaster for SocGen management. March 18: Kerviel is released from jail.

July 2: Kerviel fires his lawyer and hires a new team who promise an aggressive response to SocGen’s charges. Oct. 17: A class action lawsuit against SocGen is filed in New York.

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93 Adapted and enriched from anon., “CHRONOLOGY-Timeline of events in SocGen rogue trader case”, Reuters News, 18 March 2008.
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May 30: Jean-Pierre Mustier, head of SocGen’s Corporate and Investment Banking division and heir apparent to Bouton, resigns. Kerviel worked in his division.

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