$7.1B fraud committed by one trader

[JS80]

Originally posted by: LegendKiller

Originally posted by: Svnla
Oh wow..mr wall street ...so now time to call name? You are such a big man....LOL....where did I say "know everything"?

You said Foxnews and other sources didn't count, so I brought in WSJ and NYT.

You quoted my first post in this thread and I showed what my research brings me. There is no where I ever said that I know or anyone know exactly what happend.

Wait...let me get that guy, his boss, and the CEO on the phone...and we all do conference call...I am sure all you wall street big shots know how to speak French....I will have to get a translator..

Then don't act like you know what happened. At this point the media is just trying to scamble for talking

Frankly, I don't think anybody really knows what's going on right now. SocGen kept this quiet for a couple days while trying to unwind stuff. I have heard they whacked the Back Office. I was going to call an MD I know at SocGen, but I figured he had enough crap to deal with right now.

I like how the OP put the accents in the name. At my previous employer I closed a deal with SocGen with that same MD, a big conduit warehouse facility. One of the other people I worked with was editing the transaction document and didn't put in the accents, which the SocGen lawyers corrected. My coworker, who was a bit awkward sometimes, made a joke about it, which the SocGen team didn't take too well...don't screw with the French and their names.

Also, interesting thing about SocGen was that my bank had actually discussed acquiring it last year, but didn't like the political climate in France.

Another funny thing is that SocGen was Risk Magazine's Risk Manager of 2007...lol


http://www.risk.co.uk/public/showPage.html?page=685494


S'ok sparky, once this thing dies down and perhaps a different truth comes out, we'll revisit this. Maybe you're right, maybe I am, I am just saying that we do not need to jump to conclusions. There's been enough of that in the last few years driven by the media, just have to look as far as Duke.

Can one of you two summarize on your main disagreement? I'd like to pick a side but I can't decipher exactly what you two are disagreeing about.

 

[Ns1]

Can one of you two summarize on your main disagreement? I'd like to pick a side but I can't decipher exactly what you two are disagreeing about.

Svnla - their internal controls are weak, there is no way anybody should have been able to do this
LegendKiller - their internal controls MAY be weak, or they MAY not be. the guy knew how to game the system


My input:

I read another article that said he knew the internal controls due to his 3 years in the back office/administrative side. If you know the internal controls you can spend enough time to analyze them and figure out ways around them. internal controls can reduce risk, never eliminate it.

 

[Manuwell]

$7+ billions loss for SG, ok, but where did the money go ?
I mean, money goes from one hand to another. Who made the good deal on that one ?

 

[LegendKiller]

Originally posted by: Manuwell
$7+ billions loss for SG, ok, but where did the money go ?
I mean, money goes from one hand to another. Who made the good deal on that one ?

I do not know enough about the situation, but I believe he laid on futures contracts, somebody took the other side. For example, if I buy a contract that guarantees me a price of $100 for 100 swiss francs 3-months into the future, but by the time 3-months ends the SF costs $90, I will have to buy them for $100, not $90. The other person ends up making $10. Usually these contracts are not settled by delivery, but by cash, whereby the person who was originally buying the SF buys them on the open market for $90 and pays the counterparty $10.

This isn't going into the difficulties margin accounts or "ticks" or anything else.

Now, currencies don't move a whole lot and you usually have to buy *a lot* of one to move. Many estimates place his total amount of exposure at $50-$70 *billion*.

He actually only lost ~$2bn, but SocGen had to pay a lot of money to unwind the contracts, which is the remainder of the loss.

JS80, the summary above is correct.

 

[Svnla]

If you can wait until Monday I can explain my pov in details..I am using pda now and it is hard to type long sentences..and can't quote.

 

[JS80]

Originally posted by: Ns1

Can one of you two summarize on your main disagreement? I'd like to pick a side but I can't decipher exactly what you two are disagreeing about.

Svnla - their internal controls are weak, there is no way anybody should have been able to do this
LegendKiller - their internal controls MAY be weak, or they MAY not be. the guy knew how to game the system


My input:

I read another article that said he knew the internal controls due to his 3 years in the back office/administrative side. If you know the internal controls you can spend enough time to analyze them and figure out ways around them. internal controls can reduce risk, never eliminate it.

I side with LK. Even with strong internal controls, fraud can be committed, especially by someone who has experience in back office. There is only so much IC can do. However, it is very odd to me that a junior level trader was able to trade $70 billion. I am very interested in how he gamed the system to make these trades (and/or if there were others involved) and if there was hacking involved.

 

[JS80]

Originally posted by: LegendKiller

Originally posted by: Manuwell
$7+ billions loss for SG, ok, but where did the money go ?
I mean, money goes from one hand to another. Who made the good deal on that one ?

I do not know enough about the situation, but I believe he laid on futures contracts, somebody took the other side. For example, if I buy a contract that guarantees me a price of $100 for 100 swiss francs 3-months into the future, but by the time 3-months ends the SF costs $90, I will have to buy them for $100, not $90. The other person ends up making $10. Usually these contracts are not settled by delivery, but by cash, whereby the person who was originally buying the SF buys them on the open market for $90 and pays the counterparty $10.

This isn't going into the difficulties margin accounts or "ticks" or anything else.

Now, currencies don't move a whole lot and you usually have to buy *a lot* of one to move. Many estimates place his total amount of exposure at $50-$70 *billion*.

He actually only lost ~$2bn, but SocGen had to pay a lot of money to unwind the contracts, which is the remainder of the loss.

JS80, the summary above is correct.

Big picture, he didn't even really lose that much, he was just highly leveraged. Imagine if he was on the short side of the trade...would be have been a hero if he locked $2 billion in gains?

 

[LegendKiller]

Originally posted by: JS80

Originally posted by: Ns1

Can one of you two summarize on your main disagreement? I'd like to pick a side but I can't decipher exactly what you two are disagreeing about.

Svnla - their internal controls are weak, there is no way anybody should have been able to do this
LegendKiller - their internal controls MAY be weak, or they MAY not be. the guy knew how to game the system


My input:

I read another article that said he knew the internal controls due to his 3 years in the back office/administrative side. If you know the internal controls you can spend enough time to analyze them and figure out ways around them. internal controls can reduce risk, never eliminate it.

I side with LK. Even with strong internal controls, fraud can be committed, especially by someone who has experience in back office. There is only so much IC can do. However, it is very odd to me that a junior level trader was able to trade $70 billion. I am very interested in how he gamed the system to make these trades (and/or if there were others involved) and if there was hacking involved.

It isn't unheard of. Recent history has shown that it can happen.

As far as him being a "lowly trader", any trader is still pretty smart.

It'll be interesting to find out details as they come down though. I wonder if my bank will consider buying them now. SocGen, .50 on the dollar!

 

[Svnla]

no the summary is not correct..read my posts above...I said internal control couldn't catch everything ..in this case...how could a junor/low level trader get away with that much for that long...that why I quoted wsj and nyt

 

[LegendKiller]

Originally posted by: JS80

Originally posted by: LegendKiller

Originally posted by: Manuwell
$7+ billions loss for SG, ok, but where did the money go ?
I mean, money goes from one hand to another. Who made the good deal on that one ?

I do not know enough about the situation, but I believe he laid on futures contracts, somebody took the other side. For example, if I buy a contract that guarantees me a price of $100 for 100 swiss francs 3-months into the future, but by the time 3-months ends the SF costs $90, I will have to buy them for $100, not $90. The other person ends up making $10. Usually these contracts are not settled by delivery, but by cash, whereby the person who was originally buying the SF buys them on the open market for $90 and pays the counterparty $10.

This isn't going into the difficulties margin accounts or "ticks" or anything else.

Now, currencies don't move a whole lot and you usually have to buy *a lot* of one to move. Many estimates place his total amount of exposure at $50-$70 *billion*.

He actually only lost ~$2bn, but SocGen had to pay a lot of money to unwind the contracts, which is the remainder of the loss.

JS80, the summary above is correct.

Big picture, he didn't even really lose that much, he was just highly leveraged. Imagine if he was on the short side of the trade...would be have been a hero if he locked $2 billion in gains?

I had a discussion about this with my boss. He doesn't think so. He thinks the dude would be fired ASAP since he did violate controls and the potential exposure is much larger for that. As I said, Cap1 hit an MOU due to lax internal controls and almost was driven into bankruptcy, they couldn't even issue a CC term deal and when they did, it was at *very* wide spreads.

 

[JS80]

Originally posted by: LegendKiller

Originally posted by: JS80

Originally posted by: Ns1

Can one of you two summarize on your main disagreement? I'd like to pick a side but I can't decipher exactly what you two are disagreeing about.

Svnla - their internal controls are weak, there is no way anybody should have been able to do this
LegendKiller - their internal controls MAY be weak, or they MAY not be. the guy knew how to game the system


My input:

I read another article that said he knew the internal controls due to his 3 years in the back office/administrative side. If you know the internal controls you can spend enough time to analyze them and figure out ways around them. internal controls can reduce risk, never eliminate it.

I side with LK. Even with strong internal controls, fraud can be committed, especially by someone who has experience in back office. There is only so much IC can do. However, it is very odd to me that a junior level trader was able to trade $70 billion. I am very interested in how he gamed the system to make these trades (and/or if there were others involved) and if there was hacking involved.

It isn't unheard of. Recent history has shown that it can happen.

As far as him being a "lowly trader", any trader is still pretty smart.

It'll be interesting to find out details as they come down though. I wonder if my bank will consider buying them now. SocGen, .50 on the dollar!

Agree that any trader is smart. I was saying he was a junior level trader (i.e. experience level/position on the totem pole). But weren't the other rogue traders basically senior level traders that basically had override ability/ability to cover the books?

I can't wait for the details.

 

[jman19]

Originally posted by: LegendKiller

Originally posted by: JS80

Originally posted by: Ns1

Can one of you two summarize on your main disagreement? I'd like to pick a side but I can't decipher exactly what you two are disagreeing about.

Svnla - their internal controls are weak, there is no way anybody should have been able to do this
LegendKiller - their internal controls MAY be weak, or they MAY not be. the guy knew how to game the system


My input:

I read another article that said he knew the internal controls due to his 3 years in the back office/administrative side. If you know the internal controls you can spend enough time to analyze them and figure out ways around them. internal controls can reduce risk, never eliminate it.

I side with LK. Even with strong internal controls, fraud can be committed, especially by someone who has experience in back office. There is only so much IC can do. However, it is very odd to me that a junior level trader was able to trade $70 billion. I am very interested in how he gamed the system to make these trades (and/or if there were others involved) and if there was hacking involved.

It isn't unheard of. Recent history has shown that it can happen.

As far as him being a "lowly trader", any trader is still pretty smart.

It'll be interesting to find out details as they come down though. I wonder if my bank will consider buying them now. SocGen, .50 on the dollar!

LK, where do you work?

 

[AndrewR]

Originally posted by: Queasy
Heh

FRENCH TRADER WAS FORCED TO WORK 30 HOURS A WEEK

FRIENDS of rogue trader Jerome Kerviel last night blamed his $7 billion losses on unbearable levels of stress brought on by a punishing 30 hour week.

Kerviel was known to start work as early as nine in the morning and still be at his desk at five or even five-thirty, often with just an hour and a half for lunch.

One colleague said: "He was, how you say, une workaholique. I have a family and a mistress so I would leave the office at around 2pm at the latest, if I wasn't on strike.

"But Jerome was tied to that desk. One day I came back to the office at 3pm because I had forgotten my stupid little hat, and there he was, fast asleep on the photocopier.

"At first I assumed he had been having sex with it, but then I remembered he'd been working for almost six hours."

As the losses mounted, Kerviel tried to conceal his bad trades by covering them with an intense red wine sauce, later switching to delicate pastry horns.

At one point he managed to dispose of dozens of transactions by hiding them inside vol-au-vent cases and staging a fake reception.

Last night a spokesman for Sócíété Générálé denied that Kerviel was overworked, insisting he lost the money after betting that the French were about to stop being rude, lazy, arrogant bastards.

That's pretty funny. Actually, though, a significant proportion of the French were against the 35 hour work week. I hesitate to say the majority because I have no idea, but the family I was staying with back in '03 was not happy with the change and said that many others were not as well. I imagine that it was only the professionals (which they were) who were upset by it and not the laborers.

 

[freegeeks]

Originally posted by: LegendKiller

Originally posted by: JS80

Originally posted by: Ns1

Can one of you two summarize on your main disagreement? I'd like to pick a side but I can't decipher exactly what you two are disagreeing about.

Svnla - their internal controls are weak, there is no way anybody should have been able to do this
LegendKiller - their internal controls MAY be weak, or they MAY not be. the guy knew how to game the system


My input:

I read another article that said he knew the internal controls due to his 3 years in the back office/administrative side. If you know the internal controls you can spend enough time to analyze them and figure out ways around them. internal controls can reduce risk, never eliminate it.

I side with LK. Even with strong internal controls, fraud can be committed, especially by someone who has experience in back office. There is only so much IC can do. However, it is very odd to me that a junior level trader was able to trade $70 billion. I am very interested in how he gamed the system to make these trades (and/or if there were others involved) and if there was hacking involved.

It isn't unheard of. Recent history has shown that it can happen.

As far as him being a "lowly trader", any trader is still pretty smart.

It'll be interesting to find out details as they come down though. I wonder if my bank will consider buying them now. SocGen, .50 on the dollar!

the last thing I heard on the news was that he used fake companies to hide everything

 

[miketheidiot]

Originally posted by: Svnla
Tst..tst...tst...where are the internal controls/check and balance systems of that bank/brokerage?

<<<------speaking from an Auditor point of view

I wonder if they will pay a high rate of return for savings and CDs since they are desperate for new money.

European ATOTers, do you have FDIC (insured all savings/CDs up to a certain amount) or something like that overthere?

the person in question was formally involved in the internal controls and new how to circumvent them. This is going to lead to lots of new regulations i think.

 

[miketheidiot]

Originally posted by: senseamp
Either they are completely clueless about how to run a bank or this guy is the scapegoat of the year.

hey look, an ignorant senseamp post.

 

[miketheidiot]

Originally posted by: Svnla
bunch of garbage

socgen was regarded to have pretty stringent guidelines in place. Yes those guidelines failed, because no bank had any guidelines to deadl with what happened here. Odds are that will change and noone from the back office will be allowed to move to the floor ever again.

 

[freegeeks]

European ATOTers, do you have FDIC (insured all savings/CDs up to a certain amount) or something like that overthere?

yes we have

 

[miketheidiot]

Originally posted by: Svnla
no the summary is not correct..read my posts above...I said internal control couldn't catch everything ..in this case...how could a junor/low level trader get away with that much for that long...that why I quoted wsj and nyt

because he knew the controls and new how to manipulate them because that used to be his job.

whats interesting isn't how he did this, but why, from my understanding he was basically a salaried clerk, and had no potential for bonuses. He had nothing to gain here from posting big gains. So why did he do what he did? Why make that call?

 

[Svnla]

Originally posted by: LegendKiller
Then don't act like you know what happened. At this point the media is just trying to scamble for talking

Frankly, I don't think anybody really knows what's going on right now.......

Let see, do you work for SG? Nope
Do you know the trader? Nada
Do know know anyone that are investigating this matter? No

Therefore, you need to listen to your very own words. Don't act like you know what happended either.

My very first post in this thread, I raised questions about SG's internal controls/security systems/operation procedures and you quoted me. I replied with links/articles/news sources to back me up. I never said ..."yeah..I am a big hot shot with knowledge in Wall Street...I know exactly what happended". Show me where in this thread I said anything like that.

What did you bring to the table to back you up? Oh yeah, "I work at so and so in Wall Street...." and a bunch of big words and acronyms...and childish name callings. Yeah, mr big from wall street...show us commoners how to do a debate/discussion.

 

[Svnla]

Originally posted by: Ns1

Can one of you two summarize on your main disagreement? I'd like to pick a side but I can't decipher exactly what you two are disagreeing about.

Svnla - their internal controls are weak, there is no way anybody should have been able to do this........

Wrong.

My very first post in this thread, I said "where are the internal controls/check and balance systems of that bank/brokerage?" I then provided links, articles, news sources to back me up.

I never said there is no way anybody should have been able to do this. Please show me where I said something like that anywhere in this thread.

 

[Svnla]

Originally posted by: JS80
Can one of you two summarize on your main disagreement? I'd like to pick a side but I can't decipher exactly what you two are disagreeing about.

In my very first post in here, this is what I said... "where are the internal controls/check and balance systems of that bank/brokerage?"

I never said that I know what happended at SG or any details. I also provided several links, articles, news sources from my research to back me up.

Feel free to read them and make your own conclusion.

Here are the lastest news:

http://www.nytimes.com/2008/01...bdcfb0c3646&ei=5087%0A

http://online.wsj.com/article/...European-Business-News

http://online.wsj.com/article/SB120148103803521017.html

http://app.businessweek.com/Us...mbo_review?action=all&*****wide&productId=27035&productCode=spec


http://www.telegraph.co.uk/mon.../01/29/cnsocgen229.xml

 

[rchiu]

Originally posted by: Svnla

Originally posted by: JS80
Can one of you two summarize on your main disagreement? I'd like to pick a side but I can't decipher exactly what you two are disagreeing about.

In my very first post in here, this is what I said... "where are the internal controls/check and balance systems of that bank/brokerage?"

I never said that I know what happended at SG or any details. I also provided several links, articles, news sources from my research to back me up.

Feel free to read them and make your own conclusion.

Here are the lastest news:

http://www.nytimes.com/2008/01...bdcfb0c3646&ei=5087%0A

http://online.wsj.com/article/...European-Business-News

http://online.wsj.com/article/SB120148103803521017.html

http://app.businessweek.com/Us...mbo_review?action=all&*****wide&productId=27035&productCode=spec


http://www.telegraph.co.uk/mon.../01/29/cnsocgen229.xml

Thanks for the link. From the articles you linked and some other article I read, it seems that SocGen ignored some earlier warning signs. Also Kerviel was making more than 5 times of his target profit in 2007, keep in mind his team is to make offsetting trades which would profit on volume mostly and not the bet itself, so I'd say it's unusual just looking at the profit he made.

I don't know the truth to the matter, but from the info available, I strongly feel SocGen knew what's going on and didn't do anything when the market was up and Kerviel's bet was paying off. Once the market turned sour big time, they panic and unwind the position at the most unfortunate time, resulting a huge loss. That's just my 2 cents.

 

[Svnla]

Tst..tst...tst...where are the internal controls/check and balance systems of that bank/brokerage?

<<<------speaking from an Auditor point of view

I wonder if they will pay a high rate of return for savings and CDs since they are desperate for new money.

European ATOTers, do you have FDIC (insured all savings/CDs up to a certain amount) or something like that overthere?

Well, well, well, after over 2 years, look like what I said was right all along.

Soci&#233;t&#233; G&#233;n&#233;rale itself acknowledged in 2008 that it didn't have the right control systems in place to correctly supervise Mr. Kerviel. For this lack of oversight, the bank has already paid &#8364;4 million in fines to France's banking regulator........the bank acknowledged that its controllers hadn't followed up on numerous alerts&#8212;including some from German derivatives exchange Eurex&#8212;during a nearly three-year period when Mr. Kerviel was flouting the bank's rules.....

Source = http://online.wsj.com/article/SB100...92217262322.html?KEYWORDS=rogue+french+trader

 

[IronWing]

You've been waiting almost three years to say "I told you so"? On ATOT? Our attention spans are nowhere near long enough to offer you any satisfaction in this.