Ex-French trader must pay $6.7 billion for fraud

Ex-trader Jerome Kerviel was convicted on all counts Tuesday in history's biggest rogue trading scandal, sentenced to three years in jail and ordered to pay his former employer a mind-numbing euro4.9 billion ($6.7 billion) in damages.

The ruling marked a huge victory for Societe Generale SA, one of France's most blue-blooded banks, which has worked to clean up its image and put in place tougher risk controls since the scandal broke in 2008.

The 33-year-old former futures index trader stood expressionless as the court convicted him and pronounced a five-year sentence with two years suspended. Kerviel was found guilty on charges of forgery, breach of trust and unauthorized computer use for covering up bets worth nearly euro50 billion between late 2007 and early 2008.

In the most stunning blow, the court ordered Kerviel to pay the bank back the euro4.9 billion that it lost unwinding his complex positions in January 2008 — a punishment he would almost certainly be unable to pay. He was also banned for life from working in the financial industry.

There were gasps and surprised looks when presiding judge Dominique Pauthe read out the damages to a packed courtroom.

Outside the courtroom, defense lawyer Olivier Metzner called the financial penalty "unbelievable."

"I have the feeling Jerome Kerviel is paying for an entire system," said Metzner, noting that his client hadn't benefited financially from the fraud.

Metzner said Kerviel would appeal and will remain free pending that appeal. The damages are also suspended during the appeals process.

French media calculated that — based on his current salary of euro2,300 ($3,150) a month as a computer consultant — it would take Kerviel 177,536 years to pay off the damages.

Paris lawyer Emmanuelle Kneuse, who works on white-collar crime cases, said the damages were the largest she could recall in France, a sum that obviously Kerviel could never pay in full.

But if the prison sentence and the huge damages are maintained on appeal, that would likely force Kerviel to promise substantial monthly payments to secure his release on parole, she said.

While trading for the bank, Kerviel took home a salary and bonus of less than euro100,000, or about $155,700 — a relatively modest sum in the financial world.

Societe Generale spokeswoman Caroline Guillaumin called the verdict "an important ruling that acknowledges the moral and financial harm done to the bank and its staff."

"The bank can now turn the page, pursue its strategy and continue to rebound," Guillaumin said in an e-mailed statement.

Kerviel sat with his arms folded and his legs crossed during the first 45 minutes of the hour-long hearing, alone in the front row of the courtroom. He barely blinked as each guilty verdict was read out. He then stood for sentencing in a dark suit and tie, frowning and silent.

"He is disgusted," Metzner said of Kerviel's reaction to the ruling, adding the court had judged the bank "was responsible for nothing, not responsible for the creature that it had created."

"I hope you all will donate a euro to Jerome Kerviel," the lawyer told TV cameras and reporters.

Kerviel, a soft-spoken and debonair man from western Brittany, has garnered considerable public appeal in France for his image of being a scapegoat for powerful corporate interests. Kerviel maintained that the bank and his bosses tolerated his massive risk-taking as long as it made money, which he did at first, racking up euro1.4 billion in profits for Societe Generale in 2007, the judge noted.

In the end, the bank's loss of euro4.9 billion stands as the largest-ever alleged fraud by a single trader, though the case has since been overshadowed by other crises in the financial world, from the fall of Lehman Brothers to Bernard L. Madoff's multibillion-dollar Ponzi scheme.

During the proceedings, both sides admitted to mistakes but Kerviel insisted his bank superiors knew what he was doing. Societe Generale's former chairman acknowledged there were problems in monitoring the trader's work, and an internal report by the bank found managers failed to follow up on 74 different alarms about Kerviel's activities.

The bank says Kerviel made bets of up to euro50 billion — more than the bank's total market value — on futures contracts on three European equity indices, and that he masked the size of his bets by recording fictitious offsetting transactions.

In the ruling, the court said Kerviel acted without the bank's knowledge and said it was "obvious" none of his bosses would have allowed him to bet sums exceeding the bank's capital.

"Through his deliberate actions, he endangered the solvency of a bank that employed 140,000 people including himself, and whose future was seriously put at risk," the ruling said.

The court also praised the bank's handling of the crisis, saying Kerviel's "actions without a doubt threatened the public order of the world economy" though their "impact was contained in the end by the bank's reactivity."

No one else faces charges in the case. The bank's CEO Daniel Bouton and its head of investment banking Jean-Pierre Mustier stepped down in the wake of the scandal, with Bouton saying attacks on him risked hurting the bank.

The bank's earnings crumpled in 2007 after taking into account the losses on Kerviel's trades. Its profit rebounded in 2008 but were cut by more than half last year when the bank was hit by billions in new losses stemming from bad bets prior to the financial crisis. This year the bank's earnings have bounced back, thanks to strong retail banking in its home market.

Employed by Societe Generale since 2000, Kerviel worked his way up from a supporting role in an office that monitors trades to a job on the futures desk where he invested the bank's money by hedging on European equity market indices.

He was arrested in January 2008 and held for six weeks in Paris' La Sante prison.

Societe Generale's shares rose after the announcement of the verdict, trading up 3 percent at euro42.05 ($57.94).

Kerviel's fraud eclipsed that of previous lone traders.

In one infamous case, Nick Leeson, a British trader working in Singapore for Barings Bank, made unauthorized futures trades that lost more than $1 billion and led to the venerable bank's collapse in 1995. That case prompted banks worldwide to tighten their internal checks.

Leeson was released from a Singapore jail in 1998 for good behavior after serving 3 1/2 years of a 6 1/2-year sentence. He claimed he did not make a cent from his disastrous trades but is still subject to an injunction from the liquidators of Barings that seeks the return of 100 million pounds on any of his earnings that relate to Barings.

In 2008, Leeson said he'd paid back less than 500,000 pounds. He used the profits from the book "Rogue Trader" to pay off his seven-figure legal bill.

Leeson's agent said Tuesday the former trader was willing to do an exclusive interview on the Kerviel verdict — in exchange for a fee.

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Associated Press writers Pierre-Antoine Souchard, Cecile Brisson and Angela Doland in Paris and Jane Wardell in London contributed to this report.