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Tuesday, 5 October 2010

Crime of the week: The sentencing of Jerome Kerviel

Jérôme Kerviel was sentenced to three years in jailon Tuesday. On the face of it, and without going into the details, that seems fair enough.  Acording to the three-judge panel,  “By his deliberate actions, he put in peril the existence of the bank that employed 140,000 people, of which he was a part, and whose future was threatened.”

Fair enough, because the guy ran up €50 billion of unhedged trades that were un reported until they were discovered in January 2008 - the old trick of winning trades going into the book and the bonus pool, the losers going into the drawer (for more details see Joe Jett). And if it wasn't bad enough on top of the 3 year sentence, M. Kerviel was given a 32 year suspended sentence and a prohibition on further trading - as if anyone would let him near their trading floor.

But the real crime is that Kerviel has been ordered to pay Societe Generale the staggfering sum of €4.9 billion in damages.  The reality is that SocGen were probably aware of the risks Kerviel was taking but turned a blind eye, until things went wrong. It was the bank that was telling its traders to make short-term profits. That doesn't absolve Kerviel of any guilt, but the bank should be taking more of the blame, if for nothing other than the laxity of its controls.

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