Judges File Preliminary Charges Against Societe Generale Trader, Release Him From Custody

PARIS – Investigating judges filed preliminary charges Monday against a trader accused of causing billions of dollars in losses for France's second-largest bank. He was released from custody while the thorny investigation continues.

Preliminary charges of "breach of trust" and unauthorized computer activity were filed against Jerome Kerviel, his lawyer, Christian Charriere-Bournazel, told reporters.

The judges did not pursue a fraud charge sought by the prosecutor's office or even continue to hold him as the prosecutor wanted for fear he might flee. It was not immediately clear whether the judges were pursuing charges of forgery, also requested by the prosecutor.

The Paris prosecutor's office said it was appealing the decision to free Kerviel, who had been held since Saturday.

The charges came as Paris prosecutor Jean-Claude Marin gave a glimpse for the first time of what motivated the 31-year-old futures trader: not tremendous greed but simply the adrenaline rush of trading, and perhaps the promise of a better-than-average bonus.

The bank and prosecutors have said Kerviel did not appear to have profited from his unauthorized dealings, and his lawyers described him as a "modest boy" who got in over his head.

Still, Monday's charges, filed after questioning Kerviel for 48 hours, could bring him up to seven years in prison and hefty fines.

The banking world was stunned when Societe Generale announced a "massive fraud" last week that had cost it 4.82 billion euros ($7.09 billion). The news overshadowed the bank's substantial losses linked to the crisis in subprime mortgages.

Pressure on Societe Generale mounted, with stocks faltering, an insider trading claim and questions about how the bank failed to notice a young trader's parallel trading activity despite alerts.

The prosecutor said Kerviel acted alone and had begun his deception in late 2005. His speculation eventually triggered "a certain number of alerts" from the middle office, accounting or risk services, the prosecutor said. They received falsified responses from Kerviel.

In November 2007, Eurex "became concerned" by a position taken by Kerviel. However, Kerviel was able to wiggle out, the prosecutor said.

The bank would not comment on the Eurex or other alerts.

Kerviel told investigators his actions were in line with what other traders did, but on a larger scale, the prosecutor said.

"If his positions were more massive than others, other traders acted like him, on a lesser level," Marin said. "He considered simply that for a long time he had generated winning positions. He seemed to benefit from a certain tolerance."

Kerviel told investigators, "I exploded my line of credit," Marin said.

"Societe Generale is a victim at this stage," the prosecutor said — noting, however, that the complex investigation was just getting under way.

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

France's 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, the market watchdog reported. Regulators made no allegation of wrongdoing.

Josh Pekarsky, a spokesman for Day, said all required government disclosures were made. Day has pledged his cooperation in any inquiries.

"No inside information was used in any way with respect to these sales," Pekarsky said.

Meanwhile, the lawyer said Kerviel had been released, but his whereabouts were not disclosed. Kerviel was ordered to stay in France and not to talk to employees of Societe Generale — except those at his bank branch.

"The judges understood that, in reality, he is a boy who wanted to work with the justice system, and that he has no desire to flee, contrary to what has been claimed, nor hide anything," Charriere-Bournazel told France-2 television.

Another lawyer for the trader, Elisabeth Meyer, called the lighter charges a "victory." She disputed Societe Generale's claims that her client had committed fraud, saying he was in the black with his trades as of Dec. 31.

Under French law, filing preliminary charges means an investigating magistrate has determined there is strong evidence to suggest involvement in a crime. It gives the investigator time to pursue the probe before deciding whether to send the suspect for trial or drop the case.

Earlier Monday, Marin said Kerviel had not sought to despoil the bank but wanted to be "an exceptional trader" and earn performance bonuses.

"It's always a bit for money, I'm not sure that was his prime motive," said the prosecutor. "It functions a bit like a drug, it's an addiction ... there's a sort of spiral you can't get out of."

The prosecutor said Kerviel was expecting a 300,000 euro ($441,000) bonus for 2007 — a larger-than-usual sum for the trader but nothing near the billions the bank says it lost trying to undo his actions.

Chief Executive Daniel Bouton said Societe Generale, thought by some experts to be vulnerable to a takeover, has not been approached by any suitor.

Bouton rejected suggestions from Kerviel's lawyers that Societe Generale was using Kerviel to hide big losses linked to the U.S. subprime mortgage crisis.

Charriere-Bournazel said on Europe-1 radio that Kerviel was making a "profit" for the bank of 1.5 billion euros ($2.2 billion) before his bets went sour. The prosecutor concurred but said the trader only "virtually" made a profit for the bank.

The prosecutor, based on Kerviel's account to investigators, confirmed Societe Generale's contention that the trader used other people's computer access codes, falsified documents and used other methods to cover his tracks — helped by his previous experience in other offices at the bank that monitor traders. The bank says he bet some 50 billion ($73.53 billion) — more that the bank's market worth — on European markets.

Societe Generale shares dropped nearly 7 percent Monday before closing down 3.8 percent at 71.05 euros ($104.48) in a French market trading only slightly lower.