Societe Generale Says Rogue Trader Employed Multiple Fraud Techniques

Societe Generale detailed Sunday how a young trader evaded all its controls to bet some $73 billion — more than the French bank's market worth — saying he hacked computers and used other "fraudulent methods" to cover his tracks, causing billions of dollars in losses.

The bank says the trader, Jerome Kerviel, did not appear to have profited personally from the transactions and seemingly worked alone — a version of events reiterated Sunday by Jean-Pierre Mustier, chief executive of the bank's corporate and investment banking arm. But, in a conference call with reporters, Mustier added: "I cannot guarantee to you 100 percent that there was no complicity."

Jean-Michel Aldebert, the head of the financial section of the Paris prosecutor's office, said the questioning of Kerviel was "going very well and the investigation led by the specialists of the financial police is extremely fruitful."

Kerviel, who was taken in for questioning on Saturday, can be kept in custody until Monday afternoon.

Societe Generale said Kerviel misappropriated other people's computer access codes, falsified documents and employed other methods to cover his tracks — helped by his previous experience working in offices that monitor traders.

In a five-page document released Sunday, France's second-largest bank also sought to counter the notion that it had disrupted markets by hurriedly selling off the massive positions that Kerviel allegedly built up without authorization.

The bank took three days last week to sell off the contracts on the Eurostoxx, DAX and FTSE indices, but said Sunday it had done so in a "controlled" way.

"He had a very good understanding of all of Societe Generale's processing and control procedures," the statement said.

The bank said Kerviel had built up a position worth some $73.5 billion — which was eventually closed or hedged by last Wednesday with a loss of $7.21 billion.

"The position was unwound over three days in a controlled fashion," it said.

Jean-Michel Aldebert, of the Paris prosecutors' office, told reporters Saturday that Kerviel gave himself up of his own free will. The trader had not been seen in public since the bank announced his unauthorized trades in a statement on Thursday.

His motives remained a mystery, and the bank said it appeared that he did not gain personally from the trades. Acquaintances described Kerviel as reserved and considerate, a young man who once taught children judo and held the door for elderly neighbors.

Kerviel had been investing the bank's money by hedging on European equity market indices, meaning he bet on how the markets would perform at a future date.

Germany's Der Spiegel newsmagazine cited unnamed traders as saying Kerviel made a huge gamble on Germany's DAX stock exchange, buying some 140,000 DAX futures. When the exchange dropped, Kerviel racked up losses that amounted by mid-January to around $3 billion, said the report, posted on Der Spiegel's web site.

Societe Generale said it discovered the fraud last weekend and unwound the trader's losing bets starting Monday, when world markets tumbled.

Some experts have suggested Societe Generale may have exacerbated the fall and indirectly led to the U.S. Federal Reserve's subsequent decision to cut rates.

In an interview published Saturday, Societe Generale's chief executive, Daniel Bouton, dismissed as "absurd" the notion that the bank's actions helped fuel the turmoil on world markets.

Bouton said Kerviel had been betting throughout 2007 that markets would fall — a winning position. But the trader had overstepped his authority and was wagering much more money than he should have, Bouton said.

So at the beginning of January, Bouton said, the trader voluntarily created losing positions, to neutralize his earlier gains and cover his tracks.

But this month's quickly dropping markets turned "this sad affair ... into a Greek tragedy: His virtual losing position became huge," Bouton was quoted by Le Figaro as saying.

Despite the bank's losses, which Bouton called "enormous and abnormal," he insisted Societe Generale's viability was not at risk.

Experts and others, including France's prime minister, have questioned whether a single futures trader could have managed such large sums. Some have suggested Societe Generale might have used Kerviel as a scapegoat for other losses, like those related to the subprime crisis.

The bank says the scale of the damage was so great only because of the bad timing of the discovery — right before the worst day in world markets since Sept. 11, 2001. It also fired Kerviel's supervisors.