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back to article Rogue trader blows sox off control systems

The apparent ease with which a former software developer turned rogue trader was able to sink France's second-biggest bank into a €4.9bn ($7.2bn) hole has sparked questions about the effectiveness of risk analysis systems. Jerome Kerviel, 31, a junior trader at Société Générale Paris headquarters, caused five times the damage as …

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Silver badge

old news

every other news outlet was talking about this days ago.

The story's so old it's growing mould

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Dead Vulture

Gambled?

"In January, Kerviel went the opposite way and gambled that the markets would rise, with disastrous results."

Virtually *all* financial deals like this are gambling. It's so depressing that the world has developed so that such gambling is condoned and even encouraged. Who in their right mind can believe that such things "generate wealth"? Don't get me started on leveraged deals. Absolute madness.

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Coat

Nn?

"The bank continues to anticipate posting €800m ($1.176nn) profits for 2007."

Northern Navigators? :)

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Boffin

When companies die...

When suits and salesmen take over the management of any company, they will try to maximise profits and any cost using any means with total disregard to the cost in human and security terms !!

In SocGen's case, the management is left with counting the cost of just such a failure. The most sophisticated security system in the world can be circumvented from within as in this case !! The management did not seemed to have made periodic security audits. Therefore they deserve all the shit they get !!

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Flame

Typical developer

The fact that he came from a software systems background explains everything to me. This risk-blind mindset characterizes much of how software is built (think security, privacy, stability, and you'll see what I mean). What on earth caused his employer to make him a trader, junior or otherwise? I have degrees in both Economics and Computer Science, and 10+ years in software development for financial institutions, so I feel comfortable in asserting that experience with and understanding of financial systems is not the same thing as experience with and understanding of finance.

Hang'im high, as a warning to all rogue <fill in the blank>s out there who recklessly endanger others as if they were playing a video game with many lives to spare.

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Reminds me a bit of office space...

without the comedy.

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Unhappy

And had he suceeded?

Someone bypassed the company's checks and balances, took a massive gamble on the market and lost. Now he is being hunted down and portrayed as a fraudster, even though he hasn't made any personal profit. But what if his gamble had paid off? His employer would have made a fat profit as it wouldn't have incurred the loss on the hedged bet. Would we now be reading a news story about "Rogue trader raises French bank to $7.2bn pinnacle" - I doubt it. He would have been given a slap on the back, a promotion and lauded for his innate business skills and having the balls to take risks! In the hyped up bookies that is the stock market, it's only a crime if you lose.

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implicit trust in employees

Someone has to implicitly be responsible for building the databases, writing applications, doing maintenance work, etc. Sure, someone can come in to do an audit, but a malicious employee could trick them into auditing a false copy of production without anyone catching on until it's too late.

It is a serious problem, with no easy technical fix. Employers must realize this and do their best to find honest individuals as well as removing incentives to hack into systems. This is why many DBAs command a relatively high wage relative to the difficulty of the job; giving them less would be a risky move.

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Silver badge

SOX Control? .......You cannot be serious. That's like Drunks in Charge of the Brewery

"It's difficult to get money out of a bank, as soon as you try you will leave a trace."

And the Yin to that Yang is that it is a piece of cake to put it in. Just ask Northern Rock. More than a bit clumsy though whenever it reveals that the whole System is all based upon Perception and ITs Management for Third Party Proxy Control aided and abetted by Media Spin.

The natives are revolting ...Spin them a horror story or two to Tax them into Submission whilst we swan about as if nothing is happening eccept what media is spinning, that is?

At the 33rd Degree level of Control and beyond, is nothing Real enough not to be Virtual and therefore a Perverse Game when Abused for Profit rather than Provision.

J'accuse the System ....amfM.

I Trust in Global Operating Devices that that is not Ambiguous. It is as Plain a Text as I can Imagine to Paint the Picture for y'all.

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IT Angle

So how do they manage that?

Although they lost 7Bn, they still expect 800m profit. Does that mean it WAS going to be 8Bn?

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Paris Hilton

ermmm...

I think it's a bit harsh to blame him for the mini-crash. SocGen may have had a bad day, but the money went to other institutions which had a very GOOD day.

Maybe the media whipping up the doom'n'gloom aspect played a part, but in these types of CFD deals, for every loser there is a winner.

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Coat

crap auditors

Hmm , those French Internal Bank Auditors are truly crap and must have gone to the same school to learn their trade with the same clowns from Arthur Andersen that did the books over at ENRON to let something like this fly for so long !

To fix one concrete wall and a firing squad armed with real guns !

(I'll get my concrete boots !)

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Its only a crime if you loose indeed.

Just how many have gotten away with it because they made money?

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Anonymous Coward

whats the difference?

Rogue Trader takes gamble, losing large amounts of other peoples virtual money and gets imprisoned for years.

Secretary of Sate for Defence takes gamble invading somebody elses country and loses tens of thousands of other peoples lives. Resigns and lives in luxury for the rest of his life.

I'd like someone to explain our value system.

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Unhappy

@Anon

The difference is simple. The former was working for himself. The latter is a stooge working for the old boys club, and thus is above the law.

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ADRs

Part of the reason for ADRs is to avoid US regulation. As SocGen appears only to have a level 1 ADR program, they won't be SOX-regulated, nor will they have too much to do with the SEC.

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IT Angle

Developer ?

Time out here - a developer ?Now come on. I checked his cv on the Telegraph website - it said there he had a degree and masters in Finance and had spent two years writing Excel macros. Whilst not wishing to demean his skills (losing 7 billion euros speaks for itself in that respect) calling him a developer is stretching the point n'est pas ? I can check the oil in my car and even change the bulbs in the lights (with much wailing and gnashing of teeth) but that does not make me a mechanic.

It does rather put all those failed government IT projects into perspective doesn't it - it takes EDS, Accenture, Cap Gemini and so on years of dedicated hard work and effort to get through that kind of cash and at least they employ people to move the bytes around while they do it (plus all the money that goes to hotels, catering companies , software vendors, lap dancing clubs and so on).

And the icon - well I must say I still don't see the IT angle.

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Pirate

It was the rogue trader

I saw him wild eyed and out to lose billions. I have to say bullshit no one is allowed to play with 7 billion dollars of the firms ready without the company knowing about it anyone who believes otherwise is probably an investor.This is typical scapegoating bullshit, we have all seen it and it's not fooling anyone smart enough to stay out of the stock market. Pull the other one this ones empty.

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Mostly the banks fault.

'created fictitious customer accounts to balance the books'

Mmm did we not hear that before somewhere? I'm surprised he was allowed to deal on a hunch as that was 1980's style of trading. Today there is no need ever to take this kind of naked risk as most systems now days maintain a risk free neutral position and futures only offset the underlying position. This is all done in software and some 25% of all world transactions are now fully automated with algorithms. This can soften the blows in all but the worse cases of what the markets can throw back.

I blame the bank they had the technology never to allow this to happen again and as a trader myself taking such large naked risks is pure suicide. Of course there will always be bad trades but the losses should be manageable. As someone posted before no one though would have said a word if this trade had paid off and thats the life of a trader.

As sure as the sun will come up there will be more institutions in serious troubles in the weeks months ahead. They had leveraged risks against the plateau of stability in the markets between 2005 and late 2007 then the stability snapped across all world markets which started back last September. From gold, oil, stocks, housing, euro/dollar pound/dollar all putting in extreme levels not seen for several decades and they are hedging like mad hoping it will come back to normal. Odds are it wont and there will be more funds throwing in the towel very soon.

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Anonymous Coward

re: Typical developer ..

"The fact that he came from a software systems background explains everything to me. This risk-blind mindset characterizes much of how software is built (think security, privacy, stability, and you'll see what I mean"

Nonsense, traders are allowed to take huge risks as long as they make money. When things go wrong it's spun into 'lone trader' nonsense. Oh, and the 'blind mindset' you are referring to only applies the that ubiquitous product out of REDMON~1 .. :) Developers would write secure software it they weren't tied to getting the next buggy version out the door as quick as possible. What software developer can you find to blame for Northern Rock .. :)

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Alert

Relative

I see M.Kerviel's achievement is being hailed (if that's the word) as a record. Come on, he only lost about £3bn - the boss of Northern Rock lost £50bn, which the Bank of England very sensibly refused to stump up until leant on by Downing Street. Since no-one now wants to touch NR, I think that makes the PM the worst rogue trader ever, a record that should stand for some time. Poor Prudence must be hiding in the cellar by now...

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Black Helicopters

re: It was the rogue trader by AC

Totally agree with you. However, it wasn't just 7bln of the companies money he was allowed to play with, thats the loss associated with the said credit flow. Meaning that he is likely to have access to far far more than 7bln. According to SocGen via BBC, the trader was running a 73bln book which then made the 7bln loss based on unwinding the positions.

There is no way that he was working alone. Everyone must have been fully aware of this and maybe even the CEO would've known about it. There's no doubt they'll all be gracious and allow him to take the fall for it.

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Black Helicopters

The truth was much simpler - leaving the fox in charge of the henhouse

The truth is slowly coming out now.

It has emerged that this guy had been trained in the Security and Risk Management systems that would prevent another Leeson - in other words, he should have become one of the people that MONITORED traders. In any other country that would have automatically have precluded the guy from becoming a trader, apparently not so in France.

In other words, the company trained the guy in knowing exactly how the systems worked that were supposed to watch over him.

As stupid goes that certainly takes a bit of a beating..

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Thumb Down

Security through obscurity

The systems ought to work even if one of the traders has inside knowledge. That's supposed to be a general principle, eh?

Lots of traders have an IT background - joining in IT is one way of getting in. Or should trading be like sales and management - having a technical brain disqualifies you.

Fact is, people have been forecasting total financial collapse for many years:

http://www.fantasticfiction.co.uk/e/paul-e-erdman/crash-of-79.htm

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Missing Billions?

So how do we know he didn’t make a penny out of all this??? If the bank lost billions, then someone out there made billions. Maybe some mates of his were on the other side of these dubious trades?

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@James Picket

"boss of Northern Rock lost £50bn"

Erm, Northern Rock has not lost £50bn at all. All that's happened is that they couldn't find anyone else to borrow the cash from to lend to homeowners, so borrowed it from the BoE instead. If anything, the BoE will actually make a profit from the money it's lent to NR.

Try not to believe the "every homeowner in hock to the tune of £2k" headlines that the media stir up. The NR shambles is exactly that, but it's reasonably unlikely that the BoE will end up significantly out-of-pocket in the long-term.

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@Mark

No, the BoE will end up out of pocket. They'll have to write a big chunk of that off to get rid of NR in the current climate (they may attempt to disguise this as "favourable repayment terms" or "paying it back when it's not worth anything like that much" as we like to call it.).

Either that or they'll nationalise it (once they've thought of new, less British-Leylandesque, weasel-words to describe this). NR'll become a bottomless money-sink for time immemorial or until some future government less in hock to "oor friends oop noorth" has the balls to write all of it off and flog what remains of NRs assets for a pittance.

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Anonymous Coward

Social Engineering seems to win again

A recent report alleges that he improperly obtained "pass codes" to the auditing system allowing him to turn off the checks. This is the part I am curious about.

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Alien

Find out who benefited most from the losses…

either through direct funds or as a result of market prices falling

And that’s who was paying the “rogue” trader, not made a cent my rearend.

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Anonymous Coward

citations please ...

"A recent report alleges that he improperly obtained "pass codes" to the auditing system"

Like, is there any independent verification for this, or is it merely management spin ...

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Is there any independent citations that Jerome Kerviel:

Was a former software developer

Bypassed security

Was a rogue trader

Was a troubled Walter Mitty-style fantasist

Why would they let a Walter Mitty-style fantasist in charge of €4.9bn

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PROTHERO

Do you believe this crap, Dascombe?

DASCOMBE

It's not our job to believe it,

Lewis. Our job is to tell the

people --

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