PARIS—Exchange officials warned Societe Generale about rogue trader Jerome Kerviel's deals late last year, a Paris prosecutor said, piling pressure on the French bank to explain why his trades were not discovered sooner.
The setback came as an investigating judge threw out the most serious accusation put forward by prosecutors against 31-year-old Kerviel—attempted fraud—and set him free under judicial supervision after two days of police questioning.
Kerviel has been placed under formal investigation for lesser allegations concerning breach of trust, computer abuse and falsification, his lawyer said. Being placed under investigation can lead to trial, but falls short of charges.
SocGen and prosecutors had pressed for a fraud case against Kerviel, the junior trader accused of running up a staggering 50 billion euro wager on European share prices. His deals resulted in a 4.9 billion euro loss when the bank closed his positions, the highest in history by a rogue trader.
SocGen, France's second-biggest bank, has said it only found out about the uncovered position 10 days ago.
After examining preliminary evidence, prosecutor Jean-Claude Marin said Kerviel had admitted hiding his activities from superiors, and had said others also played fast and loose with bank rules.
Under Formal Investigation
Reuters
PARIS—Jerome Kerviel, the former trader at the centre of the Societe Generale trading scandal, has been placed under formal investigation but the probe will not include accusations of fraud, his lawyer said on Monday.
Kerviel's lawyer, Christian Charriere-Bournazel, said he had been released under judicial supervision and would be investigated for breach of trust, breaching computer security and falsification.
"The judge didn't follow the prosecutor who clearly was asking for too many things," said Charriere-Bournazel, one of two lawyers acting for Kerviel.
His other lawyer, Elisabeth Meyer, called the judges' decision "a great victory."
They spoke after Kerviel met the two judges charged with investigating the case. The former trader, who has been accused of causing 4.9 billion euros in losses at France's second largest listed bank, left the financial court without making a statement.
As part of the conditions for his release, Kerviel must surrender his passport.
In France, being placed under formal investigation does not necessarily lead to a trial and does not imply guilt.
Marin also revealed that Eurex, a derivatives exchange owned by Deutsche Boerse, had questioned Kerviel's trading positions in November, but that Kerviel had been able to sidestep questions from his employer.
"Eurex alerted Societe Generale in November 2007 about the positions taken by Jerome Kerviel. Questioned by the bank, he produced a fake document to justify the risk cover," Marin said.
SocGen, which in recent years has become a global leader in financial derivatives trading, has said it was completely in the dark about Kerviel's alleged illicit trades until it spotted a discrepancy on Jan. 18, triggering an internal investigation.
Eurex said its own processes and controls "functioned correctly at all levels, also in this case".
President Nicolas Sarkozy also turned up the heat on SocGen, saying its top managers would have to accept their share of responsibility for the world's biggest trading scandal.
"When there is an event of this nature, it cannot remain without consequences as far as responsibilities are concerned," Sarkozy told reporters while on a visit to a university.
SocGen's chairman, Daniel Bouton, who last week offered to leave but was asked to stay on by the board, said his resignation remained on the table, suggesting he may feel he has to go as criticism mounts of his handling of the crisis.
Kerviel 'Overwhelmed'
Describing Kerviel as "very upset" and "overwhelmed by events", prosecutor Marin said the trader had told investigators he had been promised a 300,000 euro bonus for 2007.
The prosecutor said Kerviel had been sitting on a paper profit of 1.4 billion euros at the end of last year. He did not make clear whether Kerviel's employers were aware of this.
Kerviel's lawyer has hit back at suggestions that he alone masterminded the world's biggest trading scam from his desk.
In a new political twist to the scandal, Bank of France chief Christian Noyer revealed that he delayed telling the government about it for several days because he feared a leak.
"I considered that the huge size of the position meant that any risk of an involuntary leak—involuntary of course—should be removed because that was the major risk that could happen in the first hours," he told BFM radio in an interview.
Market traders have expressed disbelief that such huge rogue trades could have gone undetected for so long.
But an analyst at a credit rating agency, who formerly worked in risk control at two top banks, said any bank could have been duped by a determined enough employee with enough skill.
"There are often times when traders ringfence certain trades which do not get captured in a bank's end-of-day reporting process," said the analyst.
SocGen's shares tumbled, falling as much as 9 percent and closing 3.8 percent lower at 71.1 euros. The stock has now dropped almost 17 percent since the scandal broke, wiping about 6.7 billion euros off the bank's market value.
Legal Threat
Adding to the bank's woes, a French lawyer acting for about 100 small shareholders said he had sued SocGen over the way it unbundled billions of dollars in share deals. The lawyer, Frederik-Karel Canoy, said SocGen should have informed its shareholders and the markets about its difficulties before embarking on a massive selling spree that hurt investors.
He alleged insider trading and market manipulation.
Both Canoy and small shareholder activist group APPAC also said they had filed complaints about the sale of a million shares by a SocGen director, Robert Day, on Jan. 9 and Jan. 10.
SocGen said Day sold the shares well before fraud was found.
Feeds