JEROME KERVIEL'S HEARING REPORT BY THE FINANCIAL BRIGADE
LexInter | April 8, 2014 | 0 Comments

Jerome Kerviel’s Hearing Report By The Financial Brigade


CASE OF SOCIETE GENERALE JEROME KERVIEL
___________________________________________________________Large extracts from the minutes of Jérôme Kerviel’s hearing before the financial brigade were published on January 30, 2008 by Mediapart and by Le Monde. They have been copied extensively on the Net. They were not the subject of observations by Jérôme Kerviel’s lawyers. The extracts published are placed in the chronological order of the facts mentioned

 I joined Société Générale in August 2000, as middle-office manager, (…) I left this function during the second half of 2002. I was then offered to become an assistant trader (…) ). This function consists of being the trader’s secretary (…). During the second half of 2004, I was dedicated as an assistant to a desk (…). As I was in the same row of desks as the traders, (…) gradually I became more and more interested in the trading activity. (…) At the beginning of 2005, I was integrated into the trading on the desk. (…) I still held this position until last week. Sunday January 20, (…) the head of trading told me not to come back.

When I joined Société Générale, my compensation was around 35,000 euros gross per year, excluding the variable portion. (…) For the year 2004, I received, in 2005, 15,000 euros gross of annual variable compensation. For the year 2006, I received in 2007 60,000 euros gross. (…)

For the year 2007, I have not yet been told the amount of my variable compensation, I should point out that this interview at the end of 2007 went well, they were happy with my work, they just weren’t there. agreement on the amount of my variable compensation. I offered 600,000 euros, they offered me 300,000 euros. To date, I have not received anything for 2007. As for my fixed compensation, it has steadily increased to currently 48,000 euros gross. (…)

I do not formally dispute the facts with which I am accused. I acknowledge having entered fictitious transactions, I recognize the cancellations of fictitious transactions; when it comes to taking an unauthorized position on futures, I’m a little less positive. My mandate was clear: it consists in ensuring the market-making of products (…) that do not present volatility: certificates, warrants, trackers. There is no specific written limit signed by me. (…)

First and foremost, I have in mind to make money for my bank. This is my first motivation. (…) It was a question of making money in the bank only, and in no case to enrich me personally. What is more debatable, I admit, are the means developed in this direction.

 

(…) The techniques that I used subsequently are not sophisticated at all, in my opinion, any properly carried out check is able to detect these operations. There is no Machiavellianism on my part.

It is obvious that I would not have had such results without this system (…), my hierarchy would have imposed in view of their importance that I cut my positions. I was under no illusions, I knew full well that I would be less well rewarded than on other desks, that I was not going to be paid according to market standards, this was not a brake on my motivation however. I understood during my first interview in 2005 that I was much less considered than the others with regard to my university studies and my professional and personal career. I did not go directly to the front office, but went through the middle office and am the only one in this case. But I do not live it badly, I reassure you.

 

 J e got back to the General Company in August 2000 as responsible for middle-office, (…) I left that office during the second half of 2002. I was then proposed moving assistant trader (.. .). This function consists of being the trader’s secretary (…). During the second half of 2004, I was dedicated as an assistant to a desk (…). As I was in the same row of desks as the traders, (…) gradually I became more and more interested in the trading activity. (…) At the beginning of 2005, I was integrated into the trading on the desk. (…) I still held this position until last week. Sunday January 20, (…) the head of trading told me not to come back.

When I joined Société Générale, my compensation was around 35,000 euros gross per year, excluding the variable portion. (…) For the year 2004, I received, in 2005, 15,000 euros gross of annual variable compensation. For the year 2006, I received in 2007 60,000 euros gross. (…)

For the year 2007, I have not yet been told the amount of my variable compensation, I should point out that this interview at the end of 2007 went well, they were happy with my work, they just weren’t there. agreement on the amount of my variable compensation. I offered 600,000 euros, they offered me 300,000 euros. To date, I have not received anything for 2007. As for my fixed compensation, it has steadily increased to currently 48,000 euros gross. (…)

 

I do not formally dispute the facts with which I am accused. I acknowledge having entered fictitious transactions, I recognize the cancellations of fictitious transactions; when it comes to taking an unauthorized position on futures, I’m a little less positive. My mandate was clear: it consists in ensuring the market-making of products (…) that do not present volatility: certificates, warrants, trackers. There is no specific written limit signed by me. (…)

First and foremost, I have in mind to make money for my bank. This is my first motivation. (…) It was a question of making money in the bank only, and in no case to enrich me personally. What is more debatable, I admit, are the means developed in this direction.

 

2005 My first experience in this direction dates back to 2005, when I took a position on the Allianz stock, betting on the fall of the market. It turns out that soon after the market drops as a result of the London bombings, and it is the jackpot of 500,000 euros. This date roughly corresponds to my arrival as a trader at Société Générale. I already have the idea of ​​a deal to cover my position. I have a mixed attitude because I am proud of the result and surprised at the same time. It generates the desire to continue, there is a snowball effect

 

1st semester 2007 “ In January 2007, I am short on selling on the DAX because in fact I am starting to tell myself that there are signs of overheating in Asia, and that this is confirmed, I am losing my position, as the market is going up . The fictitious deal goes unnoticed because there is no consistency check in January at Société Générale. In February, mini-crash in Asia, and I cut my position. At the end of February, I therefore no longer have a position, with a result of 28 million euros, I am more than proud and satisfied. ”

“At this time the Asian crisis comes in, and at the end of February beginning of March the first articles on subprimes. I do my research and read that potentially, there is no risk of the economy spreading . I then take the opposite bet and go up a small position at the beginning of March. From March to July, I lose because the market is constantly rising. I continue to document myself on the subprime sectors, I continue the position

 

July 2007 “In July 2007 I suggested betting on the downward trend in the stock market, he [my boss] didn’t want to. When it turned out that my bet was winning, generating cash, I had nevertheless taken a position under the complacent or at least uncontested gaze of my N + 1 [line manager] who attended the recording of my transaction. They urged me to take a stand regularly. The operation having proved successful, it thus became authorized, even supported by the hierarchy. Every day thereafter we had to position ourselves. Even during my vacation, my manager would call me to ask me what position to take. The incentive to position oneself was at its maximum. ”

At the beginning of July 2007, I was torn between the satisfaction of this success and the enormity of the amount to be announced knowing that these results were generated by false operations.

. At the end of July, the market cracks under subprime and the markets turn around. I unwind my position which is therefore at zero. My result climbs: 500 million euros (…) I find myself in the same situation as before, and this on the rise, and do not declare this result which does not appear in the books. I mask by a fictitious buy-sell operation. It is true that I found myself very intimidated by this amount of 500 million and especially not knowing how to announce it.

 

December 31, 2007 “The round trips generate a lot of cash. At December 31, 2007 , my mattress rose to 1.4 billion euros still not declared to the bank. At this stage, I am overwhelmed by the event and do not know how to present it to the bank, it represents an undeclared cash of 1.4 billion euros, except nobody has ever realized this figure which represents 50% of the total income from the equity indices branch of Société Générale. I don’t know how to manage it, I’m happy, proud of myself, but don’t know how to justify it. So I decided not to declare to the bank and to hide this amount, make a reverse fictitious transaction. By passing several fictitious operations which appear to lose up to 1.4 billion euros. ”

“I then provided false proof of entry for these transactions, namely false emails. I made a fake email using the possibilities offered to me by our internal messaging system, namely a function that allows me to reuse the header of an email that is sent to me by changing the content of the text that is sent to me. I just had to type the text I wanted and the email had all the appearance of an original document.

 

Early 2008 At the beginning of January 2008, I was torn between the satisfaction of this success and the enormity of the amount to be announced knowing that these results were generated by false operations. ”

“The techniques that I have used are not sophisticated at all, in my opinion, any control carried out correctly is capable of detecting these operations. There is no Machiavellianism on my part. ”

At the start of 2008, I put myself “long” (in a buyer’s position) because the market has evolved a lot, and I see the market coming back in the next three months, and I am still convinced that over the next three months it will rebound. So I take a “long” position and don’t worry

 

January 18, 2008  (…). On Friday 18th (January 2008), during the day, I was positive with regard to the high volatility of the market (…), it was only at the close of the session on the 18th that I was negative. I think then that I will see the evolution of the market by coming back on Monday and expect the US market to rise on Tuesday. What I could not assume was that on Mondays I would no longer be an employee of Société Générale

 

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