Société Générale Fraud Case Reaches Courts

PARIS, June 8, 2010 -- For the $6 billion alleged rogue trader Jérôme Kerviel, the time has come to face justice.

The long-awaited trial of the former French trader accused by his former employer Société Générale of nearly $6 billion in losses in 2008 started today in Paris. Despite the presence of numerous gendarmes, Kerviel and his five lawyers made their way with difficulty through a sea of microphones and cameras to reach the the Paris courtroom. More than 200 journalists from around the world came to cover the first day of the trial.

"We hope transparency will prevail, that the truth will not be obstructed by the Société Générale," Olivier Metzner, Kerviel's lawyer, told reporters while struggling to make his way to the courtroom. Kerviel closely followed his step and did not make any statement.

The 33-year-old former trader, once called a "terrorist" by his former boss, is charged with breach of trust, forgery and the use of forgeries and fraudulent introduction of data in a computer system. Kerviel is facing five years in jail and a $450,000 fine if convicted.

On Jan. 24, 2008, the head of the Société Générale himself, one of Europe's largest banks, announced to the world that the bank had suffered a massive fraud.

"We have discovered the existence of a concealed position, completely hidden, external to our books but housed within our field of market activity," Chairman Pierre Bouton said, during a news conference at the bank's headquarter outside Paris.

The fraud almost led the bank to collapse, but it was able to recover after raising 5.5 billion euros (close to $6.6 billion today) in fresh capital to strengthen its balance sheet. The bank claims that Kerviel gambled tens of billions of dollars of Société Générale's money in outrageous secret trades that led to 4.9 billion euros (close to $6 billion today) in losses once the bank concluded unwinding Kerviel's positions in January 2008.

A 'Scapegoat'

At the time, it was considered the biggest fraud in financial history, but it was soon overshadowed by a global financial crisis, the fall of Lehman Brothers and the Madoff multibillion-dollar Ponzi scheme.

The following day, the picture of Kerviel appeared on the front page of newspapers around the world. Kerviel was arrested and placed in detention for 38 days. By then, Kerviel had become a superstar, with some calling him a Robin Hood figure against capitalism. And he seemed as if he was walking the red carpet of the Cannes Film Festival the day he was released from the Santé prison in Paris. The number of Kerviel fan clubs grew, and he became a sensation on the social networking website Facebook, as people rushed to create dedicated groups and fake profiles attracting hundreds of members.

Today, Kerviel plans to argue that he was a scapegoat for the bank, that risky betting practices were commonplace among traders and that higher-ups knew what he was doing and said nothing as long as he was making money for the bank.

"At no time I was asked how I did it to bring so much money in, how I did it to have such a crazy cash balance. At no time, I had to justify myself and my superiors never came to ask me any questions," Kerviel, who is not believed to have profited personally, recently told France Info radio.

"My higher-ups were being paid according to what the traders under their command would make. The more I and others were making, the more they would be getting paid at the end of the year. So, everyone kept his eyes shut on what was going on."

Société Générale denies those claims.

"The police, the public prosecutor, the two investigating magistrates have accepted Société Générale's theory, that is the existence of a massive fraud committed by a man on his own who lied and forged documents to the detriment of his employer," the bank's lawyer, Jean Veil, told TF1 TV recently.

Kerviel is the only one in the dock. Kerviel's higher-ups were questioned in the probe, but none of them face charges. A few bank executives resigned in the scandal's aftermath, including longtime Chairman Daniel Bouton.

Two and a half years after the scandal, Kerviel, the son of a hairdresser and a now deceased metalworker, is living a much simpler life than when he was a well-paid trader. He is an accountant for a computer consulting firm outside Paris, making 2,300 euros (approximately $2,750) a month, less than a quarter of what he was making during his best year at Société Générale. He would have to work 160,000 years to reimburse the 4.9 billion euros the bank is asking as damages.

The trial is expected to end on June 25.

The AP contributed to this report.