Exceeding limit on an everyday basis
The head of the court did not seem taken by Kerviel's account of his everyday life at the bank trading desk. “Yeah, as a team, we did receive e-mails telling us we had gone over our limits - very often, in fact - but nothing happened,” he explained, “Sometimes, I would put a fake trade in the system to correct the situation and offset the risk.”
Though she still had a hard time pronouncing some of the lingo ( « complee-anz » was only one of the new coined words of the day), the judge, who mentioned that she did her homework and read “lots of books on trading,” was clearly trying to nail Kerviel on this first day. “If the limits were as informal as you claim they were, why report fictitious trades to hide that you had exceeded them,” she asked. “Because otherwise, the whole team would have been fined at the end of the year,” replied Kerviel. “Oh, solidarity with your co-workers, I see,” ironically mused the judge.
Société Générale admitted that one third to half of the time in the two years leading to the disaster, the team went over its limits, but claimed this was due to “hard market conditions” or other events, like “a difficulty to hedge a position at the end of a trading day.”
With his lawyers hovering over the Société Générale witness, Ms. Claire Dumas, who was trying to explain that if Kerviel's superiors had been aware of fake trades, the trader would have been fired right away, the Frenchman insisted that his direct boss and others “had to know” about fictitious hedging of his huge positions, since they had noticed that in one instance at least, he had reported risk-free trades (hence hedged, albeit with fictitious offsetting trades) for three days, while he was only allowed to practice intra-day trading at his desk at that time. And of course, he only unwound the real trades when asked to do it.
“It goes without saying that they knew,” he concluded. Stating the obvious might have been better.