Kerviel trial: The “anonymous” witness finally takes the stand

As Kerviel's appeal trial resumed today at 9:00 a.m. in Paris, the media balcony was full, as was the courtroom. Everybody was waiting for the key witness, promised earlier by Kerviel's lawyer, David Koubbi. At around 12:00, the man finally came, through a back door. Wiry, middle-aged, wearing dark glasses, Philippe Houbé, age 55,  looked a bit lost in front of the court. He introduced himself as a Newedge (formerly Fimat) employee since 1993, in charge of some back-office operations. He hates injustice, he said, referring to Kerviel's guilty verdict, and apparently, his own life story. That's why he decided to contact Kerviel's lawyer a few weeks ago. He knows that he can lose his job, but, he says “I don't care.”

And more than injustice, he hates the idea that some top people at Société Générale used  Kerviel as a scapegoat to keep their own jobs and privileges. The man makes around €22,000 a year – a paltry sum in the high flying world of international finance. He has been going through a tough divorce procedure for years, he says, and looks thoroughly miserable... Is he the right witness to support Kerviel's theory of a plot against the rogue trader? One can only wonder, but he is the only witness available...

Kerviel's lawyer is still excited. Houbé has done some homework, analyzing Kerviel's positions and the unwinding operations undertaken by Société Générale.  “From a technical and regulatory point-of-view, it was impossible to hide trades,” Houbé says. “And the method to hide them was very amateurish,” he adds. No hard facts, just vague assertions. Prodded by Kerviel's lawyer, Houbé starts recalling a fight that took place in the Newedge office in 2007 as Kerviel's trades were being systematically put in an error account to stay overnight, to then be manually recorded the next morning, meaning extra work for the already suffering and badly paid back office employees. What does it prove ? Not much...

But Kerviel's lawyer wants him to concentrate on the unwind operations. Houbé noticed, he said, that some – losing – trades were directed to one account, and others, to another account. What does it prove? That Société Génerale used Kerviel's account to dump losing trades that it had made on other instruments, he says.

Société Générale countered that, first, it used a work station inside the trading room to start unwinding Kerviel's positions early on January 21, 2008, to then transfer all these activities (done by a sole trader, Maxime Kahn, who swore he only unwound Kerviel's positions) in another more private office. Hence the difference in accounts. And two, that the unwound trades directed to another account amounted to just a few million euros. So, what does that prove? Not much again....

After what was supposed to be a turning point in the new trial, the head judge of the Paris court of Appeal is back to square one. It is, again and again, facts (fraudulent trades and fake hedges, all admitted by Kerviel) versus philosophy: Lax risk control, messy management and an unwritten code of profit making at all costs on the markets.

The trial should pit the key defense witness against the head trader who was responsible for unwinding Kerviel's positions in the days to come. So brace for the battle of the three “Ks:” Kerviel, his lawyer David Koubbi, and Société Générale trader Maxime Kahn.

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