The tables started turning at the latest session of the Kerviel appeal trial. While before, the head judge had a field day nailing Kerviel for his fraudulent behavior - which he freely admitted - today Société Générale looked a bit foolish.
The French bank's witness, Claire Dumas, was repeatedly asked why the risk control officers believed what Kerviel described as “incredible explanations” for some of his activities. Her basic answer: “Because Mr. Kerviel was always so nice.”
She did not described Kerviel as a rogue trader, like she had in the past, but as Mr. Nice Guy, who was always “cooperative and polite” (apparently, this was not the norm for most star traders at the bank), who “always volunteered to give explanations” (however unbelievable) and even gave flowers to a young woman who was taking over some back office operations while her superior went on vacation. “That's how he got to know that there would be no real control over the summer,” she concluded.
Lack of control at the bank was the buzz word for most of the session. Judge Mireille Filippini summed up the situation by saying that “Société Générale had ambitious goals for its trading activities, but did not hire enough back office people to control operations. The French regulators did mention this imbalance”, she pointed out.
In fact, Kerviel should have been caught much earlier if strict controls had been in place. Here are some examples:
At some point in his (short) career at Société Générale, Kerviel was dealing with warrants. Lots of warrants. And made fraudulent trades. When the risk control officers noticed there was something fishy, they asked him what was going on. “No problem,” Kerviel said, producing a neatly crafted chart, with products meeting all the required characteristics. Everything was in Finnish, though. And everything was fake. “He fooled us that way, explained Claire Dumas, his documents were so nice.” Kerviel has a good laugh, “You said before that I was no genius, while these experts were highly qualified professionals, with much more experience than I had”, he smiled. “Yes, funny you could fool them,” added his lawyer.
In another instance, Kerviel had to face margin calls for €2 billon on unauthorized futures positions. The overdraft stayed in the computer system for three days and nobody noticed. “His boss just checked the desk activities at random, explained the bank’s witness - and not everyday.” The judge was not happy. “We will ask Mr. Kerviel's boss why he had forgotten his glasses,” she snapped.
Another time, Kerviel was caught giving a fake counterpart name for a fictitious hedge. “No problem”: when asked to correct his mistake, Mr. Nice Guy produced a fabricated e-mail from Deutsche Bank, pretending the German bank was the counterpart. And the back office employees accepted it.... It was the only time during the session when the judge mellowed: “There are too many counterparts to check them all,” she suggested.
Finally, when a Société Générale witness started answering another question by saying: “Mr. Kerviel's position was visible but not seen and this is normal in the back office,” it was clearly time to call it a day.
The no-nonsense judge wrapped up the session with a demand that Kerviel's lawyers back up the plot theory they had put forward the day before with “hard evidence and sworn witnesses, … And I want this now,” she yelled. She was promised to be given documents by Friday morning, so she can study them over the weekend. Witnesses should follow by mid-June.
