Kerviel trial: It's time to plead

One of the most publicized trials in recent financial French history is now drawing to a close at the Paris Court of Appeals. Defense lawyers for former Société Générale trader Jerome Kerviel are seeking to convince the Court that the rogue trader's sentence be overturned. Kerviel received a three-year prison term and an order to repay in full, albeit symbolically, the €4.9 billion ($6.4 billion) loss that the bank incurred while unwinding the trades in 2008. He was found guilty of breach of trust, computer abuse and forgery in 2010. The sentence was suspended pending his appeal.

For nine solid days, the Court has heard various witnesses called by the defense, including a once “anonymous” man who finally took the stand and basically expressed his “intimate conviction” that Kerviel couldn't have hidden his fraudulent trades without his superiors “knowing” what he was up to. Other witnesses for the defense did the same. Mere “conviction” — little demonstration. The hearings were spiced with a lot of trading jargon, a few laughs, some fights — to such a point that the head judge, Mireille Filippini, had to call for order more than once. She also admonished, mocked or rebuked participants during the nine eventful days. 

It is now time for the defense lawyers as well as for the Société Générale counsels to plead. This will start today (Monday, June 25). Will Kerviel's lawyer, the voluble and theatrical David Koubbi, manage to carry the day? It remains to be seen, because during the hearings he often was on the offensive, but also in retreat – even at a loss, sometimes, in front of the solid witnesses, proofs and demonstrations offered by Société Générale. Nothing, in fact, in the defense strategy appeared decisive. Setting aside its weak witnesses and their mere “conviction,” its plot theory didn't really fly. It is based on the assumption that Société Générale knew about Kerviel's fraudulent positions all along but used the rogue trader as a sacrificial lamb to hide other losses the bank incurred in the subprime market.

Will Kerviel's portrayal as a “nice guy” or a guy who had “lost contact with reality” get him sympathy? Or will his depiction as a “fraud genius” by Société Générale condemn him? Will his own final tirade — he was “tired of it all” and “wanted to move o,n, he said — get him some respect? Considering the judge's no-non-sense personality, all of the above is unlikely.

However, the defense achieved one thing during these days of hearing: It managed to instill “doubt”, and showed that Société Générale was more than lax in its supervision. Kerviel's superiors were either brand-new to trading or busy doing other things, but not watching. Société Générale actually took notice and some were fired after the disaster was uncovered.  Those who were called as witnesses basically admitted in Court that they didn't carefully monitor what was happening on the Delta One trading desk, believed whatever they were told and blindly trusted reports from a weak and understaffed back-office. Mismanagement and “negligence” on the part of Société Générale had already been pointed out by experts from the regulatory agencies.

Will this new demonstration be enough to partly reverse the first verdict?  The court will have until October 2012 to reflect on it. As it will have time to, again, gauge facts (fraudulent trades, freely admitted by Kerviel) vs. philosophy (profits at all costs). At the end of the day, what remains to be seen is that a bank be actually held legally responsible for doing what basically every other bank was (and still is) doing, which is try to make as much money as possible with trading — and taking risks to do so.

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