Jerome Kerviel: Trader Societe Generale

  • Jérôme Kerviel Trader Societe Generale

    Jerome Kerviel is a French stock trader who works for the investment firm Societe Generale, his name became popular and made headlines around the world after being found guilty of a 2008 trading loss of $ 7.2 billion.

    He trades beyond his authority so that many people think he is an unauthorized trader. Jerome Kerviel is an ordinary employee, whose salary is not higher than 100 thousand euros per year, but carries a loss of 4.9 billion euros.

    Investment bank Trader Societe Generale Jérôme Kerviel is described as a scam artist working on financial exchanges without a license for certain trades.

    This story is known to the whole world because this case is almost the first in the history of world stock trading when an ordinary broker entered almost all bank funds.

    Opinions of this case vary, some claim that this is a serious mistake, others say that it is intentional fraud, and so on.

    This story is quite exciting and can provide valuable lessons that financial academic education is not a guarantee that a trader will always be profitable.

    Jerome Kerviel biography

    Jerome Kerviel is a trader from France

    • Born: January 11, 1977, Pont-l'Abbé, France

    • Marital status: separated

    • Book: J'aurais pu passer à côté de ma vie,

    • Parents: Marie-Josée Kerviel, Charles Kerviel

    • Education: University of Nantes, Lumière University Lyon 2

    • Sibling: Olivier Kerviel

    Jerome in January 2008 claimed to have cost Societe Generale (the second largest bank in France) € 4.9 billion. Jerome was included in the top 10 "rogue traders" which caused losses to the institution. Rogue Trader is a term for someone who uses institutional funds without having the authority to do so.

    Jerome Kerviel grew up in a simple family, where his mother was a retired hairdresser while his father was a blacksmith who had died in 2006. Kerviel has also been married, but for now, he is just living apart from his wife.

    In 2000, Jerome Kerviel graduated from the magistrate of the University of Lumvière Lyon 2 with a degree in Organization and Control of Financial Markets.

    He also received a bachelor's degree in finance from the University of Nantes.

    Kerviel is a simple student, has nothing more than other students, he is a student who is studious in finance with great interest, does not like dating and alcohol.

    In 2001, at the suggestion of Thierry Mavik (mayor of Pont-l'Abbe), Kerviel ran for the Pon-l'Abbe municipal election of the center-right UMP party, but was not elected.

    As Thierry Mavik himself later commented, Kervel didn't have enough sincerity to win: he was too reluctant and communicated with voters simply.

    Then, the same position was led by the candidate for President of France, Nicolas Sarkozy.

    The story of Jerome Kerviel

    Jerome Kerviel began his career at the Societe Generale bank in the summer of 2000. In 2005, he was promoted to Junior Trader after training in various trading programs such as index, swap, and quantitative trading. 

    The governor of the French central bank Christian Noyer mentioned Kerviel as a computer genius. However, according to Kerviel personally, only human resources at work are ordinary people. Nothing extraordinary from his colleagues.

    A 31-year-old young man has scored a new history, Jerome Kerviel, a French trader, has burned € 4.9 billion. Jerome Kerviel has carried out a burglary at his workplace, Societe Generale. This action was carried out by Jerome in January 2008. 

    Because of this action, Jerome had to end up in jail for some time. According to some sources, he was released again in March 2008 but under very strict escort.

    Although accused of harming Societe Generale, even as the biggest speculation that caused losses to banking institutions throughout the world during history, Jerome said he was ready to explain what details were being interrogated.

    Behind his actions which were accused of being very detrimental to the institution in which he worked, Jerome's actions were considered to have driven the world economy that brought safety. 

    SocGen Chairman (Societe Generale), Daniel Bouton, said Kerviel's actions had plunged the European stock market at that time. SocGen shares, especially in Germany, immediately fell, which prompted panic throughout the exchange. 

    Which in the end "forced" the Fed to take action by lowering interest rates to 75 basis points to prevent the spread of European markets to Wall Street. Even some US economists hailed Jerome Kierval as the helper.

    His first position at the company was in the compliance department, but in 2005 he moved to the job of a junior trader who worked with derivatives. Kerviel's role in the price difference between equity derivatives and shares which are the basis of their derivatives.

    Understanding Derivatives

    Derivatives are investment instruments that obtain value from other assets, such as corn prices, stocks, or indices. There are many types of derivatives, such as futures, options, and swaps. 

    To limit risk in derivative trading, long derivative positions are generally balanced with the same selling position.

    For example, if a trader buys Euro stock market futures hoping the market will rise, usually, this bet will be offset by shortening the decline in US futures to benefit the market because European and US stocks tend to move in the same way. Kerviel began to make only one side of this collection.

    Kerviel and Unauthorized Trading

    With several years of experience in the back office of Société Générale, Kerviel is experienced in company policies to approve and regulate trade among its brokers.

    He took advantage of this knowledge in late 2006 and early 2008 to compensate for one-sided bets with opposite positions that did not exist by creating fake trade in computers and system logs so that trade was not marked by a bank supervision system.

    Initially, this trade was profitable. With so much initial success, Kerviel is worried that the bank will find a fake transaction.

    To hide his activities, he began to create trade-in losses intentionally to generate losses to offset his initial profits. Managerial staff at Société Générale discovered illegal trading activities in January 2008 and took steps to release positions made by Kerviel.

    Kerviel's loss is estimated at € 4.9 billion. In particular, Kerviel is not believed to be personally benefited from its careless trade, even though it now falls into a group of evil traders who collectively have lost their employers billions of dollars through risky and illegal trade activities.

    Kerviel was convicted of breach of trust and other charges in a French court in 2010. He was sentenced to at least three years in prison and ordered to pay compensation of € 4.9 billion, although this sentence was later reduced by an appeal.

    Legal impact

    There were rumors that Kerviel had fled Paris after the discovery of illegal trade, on January 24, 2008, but Kerviel's lawyer denied that he tried to disappear and said he remained in Paris to face the charges.

    January 24, 2008, Société Générale filed a lawsuit against Jerome Kerviel.

    This claim was made because Kerviel made fake documents, used fake documents, and made attacks on automated systems.

    Clarisse Grillon, spokesman for the Nanterre prosecutor. Le Figaro reports that in addition to the Société Générale lawsuit, a group of shareholders filed a lawsuit for fraud, breach of trust, and forgery.

    On the evening and evening of January 25, 2008, the police stormed the Paris Société Générale headquarters and Kerviel apartment in the western suburbs of Neuilly-sur-Seine to collect computer files.

    On January 26, 2008, the Paris prosecutor's office stated that Kerviel was "not on the run. He would be questioned at the right time, immediately after the police analyzed the documents provided by Société Générale." He was taken to police custody later that day.

    The initial 24-hour detention of Kerviel was extended to 48 hours while French law enforcement questioned him about the possibility of an accomplice. 

    The investigation was later expanded to include personal cell phone records and to explore possible links to other individuals working in rival banks and private investment companies that might be involved. 

    Police are investigating whether he is working alone and whether there are investors outside of the Société Générale who may have been told in advance.

    The police are interested in whether other people are involved, either in the trade itself, or whether they receive notifications about bank sales that will occur before the details of the scandal are publicly disclosed.

    January 28, 2008, Kerviel was formally indicted, for misusing trust and illegal access to computers.

    He was released from detention shortly afterward. The charges filed carry a maximum three-year prison sentence.

    Judge Investigative Françoise Desset and Renaud van Ruymbeke refused an offer from prosecutor Jean-Claude Marin's to sue Kerviel for more serious crimes for fraud attempts and refused guarantees.

    In March 2014, the French high court upheld Kerviel's prison sentence but decided he did not need to pay 4.9 billion euros.

    On June 7, 2016, La Cour d'appel de Versailles condemned Société Générale for illegally firing Jérôme Kerviel. Société Générale said it would appeal.

    Lemaire Consultant

    April 2008 there are reports if Lemaire Consultants & Associates hired Jerome Kerviel.

    Free from prison

    On September 8, 2014, Kerviel was freed from prison Fleury Merogis, after serving less than five months in detention.

    Jerome Kerviel net worth 2020

    The latest news from tellereport reported that Jerome Kerviel was sentenced to five years in prison because as an actor who caused harm to Société Générale,

    He also had to pay 1 million euros in compensation since 2016. The former trader reports that he now works as a "consultant".

    The report also stated that the Bank advised the former trader's lawyer to open discussions on whether there is any intention to return the debt he left behind due to his past mistakes. The bill now amounts to more than 1,140,600 euros.

    What lessons from the story of Jerome Kerviel?

    He is an ordinary employee but has access to unauthorized trading outside of his authority.

    Many people who call him a poor man who owes so much that with a salary of 100 thousand euros per year it will take 49 thousand years to be able to repay the debt.

    This provides a lesson to traders so that in trade they always apply strict money management, are not overconfident and trade following applicable regulations.

    Although on the other hand, what Jerome Kerviel had done gave certain parties an advantage, the moral message was that this was the wrong way.

    Conclusion

    Don't know what was in Jerome Kerviel's mind, but what was certain was that his actions had brought bankruptcy where he worked.

    This can be done because Kerviel has mastered the system in his work very well and can analyze his weaknesses.

    However, regardless of the negative side caused by the institution where he worked, Jerome Kerviel was one of the record-breakers because at a very young age he was able to control and save the world economy accidentally.

    On the other hand, there is a very frightening thing about Kerviel's "heroism", because it turns out that a junior broker from his desk on the 6th floor of a building west of Paris, has easily - even though accidentally - driven the entire world economy!

    A young man earns 100 thousand euros a year, convinced that he has found a new transaction formula. He can carry out transactions that are out of his authority on the market with a value of almost 50 billion euros,