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Trader who lost $7 billion says bosses approved

Investigating judges filed preliminary charges Monday against a trader accused of causing billions in losses for France's second-largest bank and released him from custody.
France Societe Generale Fraud
Jerome Kerviel insisted that his No. 1 concern was “earning money for my bank.”AP
/ Source: The Associated Press

The trader accused of causing about $7 billion in losses at Societe Generale told investigators that he believes his bosses were aware of his massive risk-taking on markets but turned a blind eye as long as he earned money, a judicial official said Tuesday.

Societe Generale, which said last week that Kerviel’s actions cost it nearly 5 billion euros, quickly accused Kerviel of lying. In another twist to the multifaceted case, France’s financial markets authority opened an investigation into the bank, France’s second-largest.

Kerviel, a 31-year-old junior trader, told investigators of efforts to mask his massive transactions, but said the bank must nonetheless have noticed something suspicious, according to excerpts of his police testimony published in Le Monde newspaper. Kerviel’s remarks were confirmed by Isabelle Montagne, a spokeswoman for the Paris prosecutor’s office.

“I can’t believe that my superiors were not aware of the amounts I was committing, it is impossible to generate such profits with small positions,” Kerviel said, according to the account confirmed by Montagne.

A lawyer for Societe Generale said the bank was “a victim of someone who lied, who cheated.”

“When you are questioned by police or judges, you have the right to lie,” lawyer Jean Veil told RTL radio.

Kerviel said the mere fact that he only took four vacation days in 2007 should have been a glaring sign to the bank that he was unwilling to let another trader step in for him.

“The techniques I used were not at all sophisticated, and any correctly conducted check should be able to detect these operations,” he said, according to the testimony in Le Monde that the prosecution official confirmed.

Kerviel also insisted that his No. 1 concern was “earning money for my bank.”

“As long as I was earning cash, the signs were not that worrisome,” he said. “As long as you earn money and it isn’t too obvious, and it’s convenient, nobody says anything.”

According to the testimony, the futures trader also told investigators that his pattern of hidden trades started in 2005 with a bet that turned profitable when markets fell because of terror attacks in London.

“It makes you want to continue, there’s a snowball effect,” he was quoted as saying.

France’s market watchdog, the Autorite des Marches Financiers, or AMF, said it had opened a probe into Societe Generale.

Christine Anglade, a spokeswoman for the body, gave no details on the nature of the investigation and would not say whether it had any relation to Kerviel. Les Echos newspaper reported that the AMF has been examining the trading in the bank’s shares in the days before the announcement of Kerviel’s actions.

A lawyer for a group of Societe Generale shareholders, Frederik Canoy, has filed a legal complaint asking investigators to look into possible insider trading.

On Monday, the market watchdog said in a routine disclosure that a member of Societe Generale’s board, Robert A. Day, sold 85.75 million euros ($126.1 million) worth of shares in the bank on Jan. 9 — two weeks before the fraud announcement and well before bank management says it discovered the problem. Day is an investment manager with U.S.-based Trust Company of the West, or TCW.

Two foundations linked to Day, the Robert A. Day Foundation and the Kelly Day Foundation, also sold a total of 9.59 million euros ($14.1 million) worth of shares one day later, on Jan. 10. Regulators made no allegation of wrongdoing.

Josh Pekarsky, a spokesman for Day, said all required government disclosures were made, and he said no “inside information was used in any way with respect to these sales.”

The bank’s troubles have led to increased speculation that it may be the target of a takeover bid. Prime Minister Francois Fillon said his government will seek to fend off any hostile takeover.

Kerviel was pinned Monday with preliminary charges of “breach of trust,” “forgery and using forgeries” and unauthorized computer activity, the Paris prosecutor’s office said. The judges did not pursue an attempted fraud charge sought by prosecutors.

One of his lawyers, Elisabeth Meyer, called the lighter-than-expected charges a “victory.” Paris prosecutors appealed the decision to free Kerviel.